Monday Morning – Getting Ready For Earnings Season

Posted on by zman

 

The Week Ahead:

  • Monday 10/5: ISM non-manufacturing index (forecast of 50.0% vs 48.4% in August)
  • Tuesday 10/6: No economic reports scheduled.
  • Wednesday 10/7:  EIA Oil Inventory Report, (AA) reports, Consumer Credit
  • Thursday 10/8: EIA Natural Storage Report, Jobless Claims (forecast of 535K vs 551K last week)
  • Friday 10/9: Trade Balance (forecast -$33B vs $32B last)

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Price Deck Watch
  • Stuff We Care About Today
  • Odds & Ends

Holdings Watch:

  • $10KP II:
    • $12,600
    • 41% Cash
  • Current Holdings Tab is updated.

 

Commodity  Watch:

Crude oil rose 6% last week to close at $69.95, after gasoline and distillate inventory numbers came in below Street expectations. I was looking for a smaller than expected build in distillates and I am looking for another one, or a draw down there this week as demand for home heating moves higher seasonally. The 12 month crude strip is now trading at $72.09. This morning crude is trading off about a buck.


  • Iran Watch: The New York Times reported that a new IAEA report says Iran now has "sufficient information" to build a nuclear bomb. Congress on Sunday vowed to take "quick action". 
  • MEND Watch: The group claims to have replaced all of its leaders who have accepted the Nigerian government's amnesty term. They vowed to re commence hostilities soon.

Natural gas fell 4.6% last week to close at $4.95. The 12 month strip is now trading at $5.82 providing ample opportunity to hedge those who are thinly protected in the first half 2009. After listening to IPAA last week, both the big and little fish in the E&P world who have been waiting for higher prices to hedge 2010 for the most, for the most part continue to wait. We are in the heart of the shoulder season (slack heating and cooling demand) so I expect some volatility with an upward bias as we draw towards the end in the month (and the end of injection season).This morning gas is trading flat.

  • Weather Watch: Colder Weather Has Arrived. From here on out, we switch our focus from population-weighted cooling degree days to gas heating population-weighted heating degree days. Heating degree day definition.

    • Week Before Last: 14 HDDs (so barely noticeable)
    • Last Week: (was colder than forecast and slightly colder than normal)
      • 42 HDDs vs a prior forecast of 34 HDDs.
      • Normal for the week is 39.
      • The year ago comparison was 26. 
    • This Week's Forecast: 53 HDDs
  • Tropics Watch: Three tropical waves with associated thunderstorms are making their way across the Atlantic but chances of development are low due to strong wind shear and dry air. Tropical Storm Grace formed near the Azores but this system does not appear to be a threat to land.

Price Deck Watch:

ZComment: Estimates of future oil and gas prices are roughly in line with the current forward. This has been true for oil for awhile now but natural gas estimates have looked more aggressive until the recent rebound in the front half of the strip pulled futures prices into line with analyst estimates. While we saw a preference on the part of the analytical community for oily names going into last quarter's reporting period this quarter should see a more balanced approach. Those analysts that believe natural gas still has new lows in store for it in the near future have become fewer in number.  I still think that cheaper oil names will be the easy call for analysts as they look for places to play the quarter but more of them will be turning to natural gas names with growthy 2010 profiles. See multiples for the small and mid cap crowd in the next section.

 

Stuff We Care About Today

3Q Earnings Season Is Around The Corner. (HAL) kicks things off for the energy sector 3Q reports on October 16. Earnings season for the producers doesn't really get into full swing until the last week of October and first week of November. I'll be going through the multiples for all of our energy sub-sectors and favorite names, one group at a time for the next couple of weeks. I'll also have the usual energy quarter calendar out when we have a few more release dates for the key names.

I use the following charts and tables as measures of the small and medium cap E&P names relative to one another. This is useful when looking for say, a cheap, gassy name with high estimated CFPS growth for 2010 vs 2009. Of late, "cheap" has largely outperformed "expensive" or higher multiple names, growth not withstanding. These charts will be added to the E&P tab as will subsequent multiples pages for the 3Q season.

Small and Mid Cap E&P Multiples:

 

 

Odds & Ends

Analyst Watch:

  • (ECA) started at Outperform at RBC, target $72
  • (TLM) started at Outperform at RBC
  • (NXY) started at Perform at RBC
  • (COP) upped to Buy at Deutsche, (MUR) upped to Hold
  • (VLO) cut to sell at Deutsche

84 thoughts on “Monday Morning – Getting Ready For Earnings Season”

  1. Oil down $1.34 now. Market putting more faith in Nigerian rebel leaders taking government amnesty than they are in MEND statements that said leaders have been replace.

    Flat dollar before large treasury auctions not exactly supportive of crude early this morning either.

  2. Good morning.

    TechTrader at 55/45 long for today. So, that’s long, but not with a ton of conviction

    HeadTrader points out that Mother Goldman has upgraded WFC and COF, so the banks will probably be stong and that could hold the mrkt up.

    Personally, I was hoping for more of a sell off (to add to a few favored positions). Since that is what I want, if history is any guide, that is not what is going to happen.

  3. Morning BOP and thanks.

    NG up another $0.09 and rising on top Friday’s 25 cent move. Despite oil weakness, NG at $4.80 brings those sell stops you know are set at $4.99 and higher into view. Last week was a good bit colder than the forecast from a week ago and this week is set to be slightly cooler than last.

  4. NG up 15 cents, looks like a telephone pole on the minute chart since 9 EST.

    A few gassy stocks like SWN now bid up. If the broad market weakens they probably won’t note the move until the front month breaks $5. Notably, the out months are up strongly as well.

  5. Levels from Nicky as of Friday:

    SPX has resistance at 1029 and then 1041.

    NG up 19 cents.

    Energy names mostly green but barely, will improve more than market if market will pick green as the direction of the day.

    We’re back into the season where HK typically releases an operations update… last couple of quarters no joy on that account.

  6. ISM non-manufacturing due at in 20 minutes. Not buying the pre release rally. Looking for 50.0 there vs 48.4% last read.

  8. Choices – just this little comment from Thursday:

    ATW – signed the Beacon to a $110 Kper day contract with Hess off E.G.

    This rig had been idle since July, one of three ATW rigs not working in their small fleet.

    Provides better visibility on 2010 earnings.

    Earnings acceleration with this story is very strong through 2011. I’ve missed the run from mid 20s but will have to take a hard look at them if we get a market discombobulation.

    And I’d add this now on EPS:
    2008A $3.34
    2009E $3.76
    2010E $4.00
    2011E $5.03

    No other deepwater or shallow water driller has that kind of earnings growth profile. They are small to be sure so as they add new rigs it matters a lot to the story, unlike when DO or RIG adds a rig or two. This is a double edged sword in that having a rig off line for a time can really trip you up as well. The Southern Cross (jackup) has been out of work for I think about a year now. The Beacon was not in their numbers going forward (or it should not have been so we may see an incremental add to the 2010 numbers). Once the rigs are offline, its seen as upside when they come back up as they still have daily costs to maintain them. This is one I will play after earnings as it really does feel like I missed the run but that the name is still cheap and conservatively managed from the balance sheet side.

  9. choices – i believe it was u that commented on maybe we should start shorting these stks that announce secondaries, even tho they’re gonna open down quite a bit. last week after whoever said that, HERO was next to announce that while stk was about 6.25 stk opened at 5.50 and traded there for a little while, before starting further descent. they announced deal at 5 , and now stk at 4.57. i didn’t short it, just watched it to try theory, but am ready to short next one.

  12. Howard Weil raises FST and CRK to Outperform.

    Kyle – for me, that would depend on the situation, as in, what they use the funds for. Some of these guys have done a good job cleaning up their balance sheets and not suffered much in the wake of the deal for it.

  13. Conf call rant

    My favorite conf call is by Mark Papa over at EOG. Papa tries to add some understanding to the current market conditions. Another fav is Gold at SLB.

    But what I hate is conf calls where management just reads off the press release or the presentation data on the web site. That insults my intelligence. I can read a press release. I also hate those anaylysts whose questions are nothing more than their trying to show how smart they are. War and Peace is shorter than some of these questions.

  14. BOP or anyone else that over hears trading desk chatter – way off topic question for you – do you have any sense of how fixed income desks (particularly those with a real estate slant) are faring this year? Q3? A buddy of mine has an interview lined up for a job working on a fixed income desk next week. Former Citigroup retail fixed income trader – he is just trying to get a sense for how his potential employer is doing this year. Any help appreciated.

  15. BSJ – Couldn’t agree more on the whole reading of the press release issue. Small timers do that. Papa is good on the gas macro although he, like everyone else, got the back half last year wrong on oil and gas prices. Looking better/smarter now having stayed unhedged on liquids. SWN and NFX management do an excellent job of relating their stories and NFX in my book does the best job in the group from their website of letting you know what’s up with the story with their @NFX product. Campbell, their IR guy is a pro, hails from APC. APC’s Hackett does a very good job with the macro and the geopolitical. Aubrey at CHK does a good job as well. Least favorite among the big caps is XTO’s Simpson, style just rubs me the wrong way.

  16. 1520s — best year ever, for fixed income. From both issuance and a market-to-market appreciation of assets. The bottom of the fixed income market was Dec 6, 2008. So, 2009 has been a whopper of a year… all year.

  18. ATW-thanks,Z-EPS does look very strong, particularly in the out years. I bought some end of last week but looking to add.

    kyle, no it was not me but it seems to makes sense in this market (shorting stks w/secondaries.

  19. Z – any idea why DNR is performing so poorly? I have my thoughts on why, but I am just interested in yours.

  20. I think the group this guy is interviewing with are a distressed team -busted CDO’s, they do some mezzanine lending, will even buy property outright. I think they started a trading operation this year because the opportunity was just too good to pass up.

  21. BSJ – best guess is higher lifting cost production but it has been that way for some time now. At least oily little BRY got a better move off the lows before stalling. I think DNR has good future ahead of it in CO2… but it sure is lagging now. May need to have a closer peek before earnings as it is not one of my highly trafficed names.

  22. I call Aubry and Simpson the salt and pepper team. Salt and pepper because they seem to take jabs at each other. I am also a fan of Aubry.

  23. 1520s — although real estate (especially commercial) is expected to get worse (and some people think a LOT worse) before it gets better… the assets were so distressed at the beginning of the year, that it has been a banner year for “toxic assets” as well. As far as any more specificity than that, I would have to track down a RE expert. But, this is also why bank earnings will continue to “surprise” people who thought toxic assets were headed for the dust bin. They aren’t. They are back… and the strongest appreciation has been in the lowest-quality stuff.

    If it didn’t “go poof” (which a lot of stuff did, of course), then it appreciated… a LOT.

  24. I’ve tracked Aubrey a lot longer than Simpson and you know all the stuff that comes with talking about him but you have to admire, very much, what he’s pulled together. And he’s even been right with the hedges which not many can say.

  26. My view on DNR is that people thought that after the Green pipeline, cap ex would start to go down. However, now they are talking about another billion dollar pipeline. I think that turns people off.

  27. Good morning.

    Broader market has yet to put in a wave v down so bullish and bearish count still on the table. That said my preference is leaning towards this being a wave iv correction which will stop somewhere between 1036 – 1041 and then we make a lower low between 998 and 1009.

    I had thought that 1041 was critical but actually it isn’t! We could go higher and the bearish count still be on track.

    Moving on a bit once the v wave low is in sometime this week then we should see a decent rally.

  28. Thanks much Nicky, so do you have a line on the chart which turns the count back into the bullish camp?

    Good documentary on who killed the electric car over the weekend. A must see, think it is a 2006 production but I never got to see it before now. No surprise, it is the evil oil companies that get the blame. Fairly inconclusive investigation for about 1:55 minutes (which good shots of Ed Begly types about to cry when their cars are towed away and crushed) and then a snap to judgment that the car co’s and big oil were to blame.

  29. NG at 4.97, up 26 cents (that’s on top of 25 cents on Friday). CNBC reporting its UNG issuing more shares today. That plays in but I’d also point to the weather, and a tired short trade here and last week’s demonstration via data no one can miss that production is in fact rolling over.

  30. On the wire: ATPG ATP Oil & Gas assumed with a Market Outperform at Howard Weil; tgt $22 (16.84 +0.39)

  38. Supreme court rejects Interior department’s request for a review of appeals court ruling on royalties. Good news for APC to the tune of $350 mm and to the aggregate Gulf of Mexico producers to the tune of $19B. One large victory for royalty relief and for sticking to the language of a contract.

  42. I realize #37 probably isn’t about the likes of XOM. But as an aside, I just glanced at the chart & it looks ugly on daily & weekly scales. If XOM is some kind of economic proxy… ugh.

  43. Was on phone…

    Dman – All I’m saying is that the bear case at present, or one of them, for the broad market, not energy, is that earnings may hit lowered targets but that revenue growth is non-existent. My thought then is that people will flock to where they see a higher propensity for revenue growth. And I’m thinking on a sequential, not a YoY, basis. Oil prices moved in a fairly flat range during the quarter, but averaged $68.20 in 3Q vs $59.78 in 2Q. If you pull an oil price chart you can see oil was running up into the close of the second quarter.

    I’ll add more on this in the post as I was giving it some thought for tomorrow’s piece which will have the orange charts for the big cap E&Ps.

  44. Nice to see NFX starting to pick up it’s head again. For a while it was acting very poorly, but now it seems to be acting much better. Of course I have just put the curse on it by my mentioning this.

  45. Z – further to #43, I don’t think the energy sector has kept up with the broad advance, so it could be due some catchup. But the problem is, can that occur whilst the broad market is correcting? I guess it can if the correction isn’t too nasty.

  46. Dman – believe it or not, I have seen this before. Well described by you there. My sense is energy rises into an up or flat market. Correction trumps that move.

    BSJ – on the NFX, if you look at the recent string of announcements from the granite wash monster gas wells to the Pearl River Basin oil discoveries and the fact they are going to be hooking up 5 deepwater developments in the next 12 to 15 months, and the fact that the stock is perpetually cheap but transitioning to an oilier name, with Bakken upside, I don’t see why it is as low as it is. It goes through periods of ignoring the group and market and can be a frustrating name. I own the common and am occasionally long calls as I am now.

  47. NG up 21 cents at 4.93 having fun into a road block just below $5.

    Crude down 50 cents now, back above $69 and well off the LOD about a buck below here. Dollar showing some renewed signs of weakness.

  48. Crude going green, above 70.

    Dman – I’ll have those comps for oil and gas quarterly prices in the post tomorrow.

  50. Wow this is quite the move in commodities. You have to believe its going to take the indices with it. I am looking for a new high in metals and oil at least hitting its previous high. Indices a long way behind right now.

  52. Hear ya Nicky. From the fundamental side, there is not much reason to rally oil, so it has to be a market influenced technical move. The stocks in the mid cap oily names are doing fine on cash flow anywhere north of $50 and that number is coming down, so I don’t really need a move higher in crude now and in fact think its unwelcome as one has to justify such a move. I thought the Nigerian amnesty deal was a non-event (now seems that it is as the guys who surrendered all have friends who didn’t) and Saudi’s price cut today just inspires more demand from 2nd and 3rd world regions. It also gives Russia a taste of their own medicine.

    In my book, close on indexes, especially S&P most important thing affecting energy right now, followed by natural gas. Oil will go with the market through tomorrow night, then I think API will get a stronger than normal look from the markets as their data has been fairly close on with EIA if a week or so early. I still expect a small drawdown or small build (not a big one) in distillates, the result of rising seasonal demand.

  53. VTZ – it isn’t backing off at all at the moment.

    Whilst a move above 1041 isn’t the end of the bear case I still think many will cover if they see it.

  54. Stimulus II could prove to be catalyst that breaks the dollar’s back? G7 didn’t have a strong dollar comment either.

  55. They have got to be out of their minds talking a second stimulus.

    That said even Roubini said it was needed this morning.

    But imo the road to ruin.

  56. Inflating their way out is the only solution left that within their political influence.

    The road was obvious after the first series of bailouts and the automakers.

    There is no solution left.

    Raise rates circa Volcker and destroy the economy except with unemployment rate starting at 9.8% (or 21.6% per shadowstats statistics).

    Leave them low and inflate is the easiest way out with the political capital they have.

  57. Stocks not really responding to oil cracking $70. Needs a close above $70 and a positive open tomorrow. Agree with VTZ that Stim II is another nail in the dollar’s coffin. Support continues to mount for replacing the dollar with IMF notes (Special Drawing Rights) as the world’s currency. China has already made some size purchases of SDRs.

  58. All the while talking up your “strong dollar” to sell as many bonds as you can on your way down. I think they’ll be surprised to find out that China has other options in contrary to their “China has to buy our bonds” argument.

  59. Keep in mind that Bernanke comes from the school of thought that the mistake Japan made was ending stimulus too soon.

    Rest assured he won’t make that mistake… he has openly said he won’t make that mistake.

    Bernanke was another indicator that inflating their way out was the answer.

  61. Nah, it’s Monday, been this way all year, slow to start.

    NG just hit 5.008 before backing a bit. Oil up nearly a buck now has to be supportive. Refinery snags on the gasoline side sited by CNBC for a pop in RBOB, not really helping the refiners as much. I again think the potential for a distillate draw is a bigger deal than the Street is giving credit for at present:

    Advanced Inventory Read Watch:
    Crude: up 1.9 mm barrels
    Gasoline: up 1.2 mm
    Distillate: down 0.45 mm

  62. Re: #33, checking in, a lot of not as fun work to do today, keeping me from mkt…NFX looking good and still on a P&F buy signal, major support $37.01 to $38, upside target remains at $68 on the current buy signal, NFX goes back on a sell on a print of $37

  64. Copper (JJC), Aluminum (JJU) and crude all show negative MACD signals on the weekly charts. Combined with ugly XOM (which also has a negative weekly MACD)…

    Anyone wanna bet against the economy?

  65. I don’t think XOM is a good proxy for the economy or the for the group, at least the parts of it I play in. It has had, for the last several quarters, only a fleeting impact on the group, mostly due to its influence on the DJIA.

    Couple reasons for this. XOM does not attempt to grow volumes, especially in N. America. It is integrated so returns should be rather muted in this kind of environment (if upstream does well, down stream does less so and vv). COP warned on Friday which makes sense and you may see a warning out of CVX as well. XOM is better at guiding in my book but cracks have stunk all year and not just in the U.S., and chemical shipments have been depressed, so aside from oil rising, they don’t have a lot to drive earnings out performance.

  67. Z – not looking at XOM as group proxy. Just as an ingredient in the soup that we used to call the economy.

    BTW, the SPX isn’t yet at a negative weekly MACD signal, but it looks like it wants to be soon.

  68. For calculating Crunch Time.

    This interview with Sadad al Husseini is worth reading. Basically, after a year of record “adds”, (1/3 of what will be produced this year), we are net loosing approx 5 MMBOPD/YR and pending projects can’t fill the gap – nor can the Saudi’s by themselves.

    http://www.energybulletin.net/node/50234

  70. Reef – listened to HDY at the tail end of IPAA. More interested after that.

    SP at HOD, 1041.61…people talking Nicky’s 1041 level on CNBS.

    Art Cashing making a good point that this rally comes on light volume. Feels that way in the energy group and looking around, volumes in my names are pretty light. Not a lot of conviction. This is probably going to be one of the more important reports out of AA on Wednesday afternoon to start the DJIA’s earnings season.

  72. Reef- If I do that one it’s a fire and forget about it for 2 or 3 years…especially since they won’t be spudding a well for awhile.

  73. Z any view on VQ and the Monerey Shale? Suppose to be another Baakan. Oxy is be holder of acerage, with VQ holding about 200K. VQ is having an investor day tommorrow and the stock is very stock today.

  75. VQ – not really, I’ve liked what I’ve seen but never enough to work it up. I note it every once in awhile, kind of got a full plate on California oil plays right now with my WRES holding. Next time it takes a large dip someone prod me on it.

  77. NG ticking over $5 in the AH.

    Volumes remaining light into the close on E&Ps which are showing a rare bit of outperformance relative to the OIH.

  78. No eco data tomorrow. It may be hard for the market/group to press today’s move ahead without some sort of catalyst. Unlikely that its a merger. One thing that could happen is a continued drop in the dollar. Also, a close over $5 on natural gas would give the go ahead to see some prints at the highs from 1 to 2 weeks ago for the E&Ps.

  80. bloddystupidjohnson..you must be a long lost cousin..you like some of the same names as i do

    vq is oily ..oxy made a new discovery in kern county, i dont think vq has exposure there. Pxp mentioned they had some acreage there

    I find dnr interesting and suprised they are lagging. They hedged oil lower than current numbers

    Aubrey may look like a freaking genius after taking his 2010 hedges off and aggresive expansion into the haynesville and marcelus

    Im in a new name, atpg, which is somewhat overhyped on other blogs, but if they execute their plan could be a good winner. Atpg was on bloomber after the close and the stock pop’d to 18.50 ah today

    I think i heard oil went into backwardation today which would encourage inventory dumping

  81. Bill – nope, not in backwardation.

    Nov 70.54
    Jan 70.86
    March 71.78
    Aug 74

    Strip has gotten flatter in recent weeks but still in contango.

  83. re 82. Yep, bring on the stagnant lease rental fee, the shortened lease, and abandonment of cost recovery for potentially non-commercial reserves in the deepwater, and the hiked rates. Again, it makes me laugh when the secretary of labor says they are doing they all they can to encourage job growth. Where? Chinese drilling rigs? End of rant.

Comment below here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

s2Member®