Tuesday Morning – Lots of Non-Energy Earnings

Posted on by zman

 

Market Sentiment Watch:

Earnings Watch: In general, better than expected numbers with decent guidance and comments about rising customer demand.

  • AAPL, TXN, DD, PFE, UTX, KO, and especially CAT all came in better than expected on the bottom line, giving a boost to futures overnight and this morning, however top line growth remains subdued with meets and small beats. DD, CAT, and KO actually missed their top line estimates but outperformed on EPS due to continued cost cutting. That earnings leverage augers well for rapid EPS increases when demand does come back.

Eco Data:

  • Housing starts: 590K vs 607K expected.
  • PPI of -0.6% vs -0.3% expected (-0.1% core vs 0.1% core expected).

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today - MMR, HK
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $36,500
    • 71% Cash
    • The Current Holdings Tab Is Updated.
  • Yesterday's Trades:

    • SLB – Added (10) SLB November $75 Calls (SLBKO) for $1.15 with the stock at $70.20 as per comments in the post. Earnings are Friday.


Commodity Watch

Crude oil rose $0.94 to close at $79.96 yesterday on the December contract which takes over as the prompt month crude future starting tomorrow. Crude was aided by a week dollar but I have reservations about this week's inventory report (see below). This morning crude pretty flat.

  • Early Read On Oil Inventories:
    • Crude: UP 1.5 to 2 mm barrels ... but it could be quite a bit bigger due to a resurgence in imports and falling refinery throughput.
    • Gasoline: DOWN 1.5 mm barrels.
    • Distillates: DOWN 1.6 mm barrels ... it looks to me like this one will be bigger as well.

Natural gas rose 5 cents to close at $4.84 yesterday. Blame last week's colder than anticipated weather. This morning gas is trading up 10 to 15 cents.

  • Imports Watch: Up 0.1 Bcfgdp from last week and down 0.5 Bcfgpd from last year.

    • Canada: 6.4 Bcfgpd, down 1.4 Bcfgpd from year ago levels.
    • LNG: 1.6 Bcfgpd, up 0.9 Bcfgpd from year ago levels. This affirms recent commentary that natural gas, like oil and oil products, is being stored at sea. As prices rose in the U.S. volumes started make their way ashore. This is the highest level of LNG imports we have seen since June.

Crack Spread Update


Key Takeaways:  No new thoughts here. The group remains mired by weak margins which are in turn a function of high crude prices relative to high finished product inventories. In 2010 and 2011, new foreign refining capacity is set to come on line further "bleakening" and already bleak outlook. There also seems to be little to no interest in M&A activity in the space with a number of facilities being quietly on the block with no buyers. I think the only thing that gets margins and thereby the group off the lows will be consistently rising demand in both the U.S. and overseas (for U.S. diesel).


Stuff We Care About Today

MMR Post Earnings Wrap

  • Upcoming Catalysts:
    • Blueberry Hill Sidetrack 2:
      • Large structure, already have 190 of gross pay which were wet.
      • Interesting that they encountered two new sands (1 wet, 1 with hydrocarbons) not seen in the original well or the first side track. Both of these are 150 to 200 feet of pay each. These look to be well developed sands, unlike in the downdip.
      • Sidetrack 2 is drilling updip to target a better take point after ST1 had mechanical problems, they hope to get another 150 to 250 feet of hydrocarbon bearing pay.
      • 29.7% NRI vs gross unrisked reserve potential of 500 Bcfe.
      • For point of reference MMR had 344.8 Bcfe of booked reserves at year end 2008.
      • Nutshell: They are within 24 to 48 hours of being at TD here if they don't encounter mechanical difficulties with the well (recall that its very hot, with very high pressure).
      • So maybe you get a press release here within a week or two if not sooner. If they get the sands they are after, I would expect the stock to move into the $11 to $12 range as this will derisk several prospects they are looking at.
    • Davy Jones
      • Encountered the Eocene (Wilcox) just shy of 22,220 feet.
      • This is essentially where they expected to see the Wilcox which helps tie the well to points onshore, through the shallow water (where this well is located), and finally in the deepwater (where the Wilcox is productive at Kaskida/Shanandoah/Tiber, Tahiti/Maddog, Jack/Cascade).
      • 25.9% NRI
      • Note the targets here are shallower than at their high profile difficulties at Blackbeard.
      • I would not expect news here within the next couple of weeks.
    • Hurricane Deep

      • Targeting 900 feet of gross sand seen in a previous well.
      • Trying to get updip to that well
      • 17.7% NRI on a gross unrisked target of 350 Bcfe
  • Valuation:

    • 4.0x 2009 CFPS
    • 2.5x 2010 CFPS - cheap, especially given the upside potential.
  • Balance Sheet: Good shape, staying well within cash flow.

HK Borrowing Base:

  • $2 B revolving facility with a borrowing base of $1.5 B ($1.2 B for E&P properties, $0.3 B for midstream); at present the borrowing base is $1.38 B as the midstream is limited to $182 mm by covenants.
  • Lastly, once the Permian sale is closed the E&P side of the base will fall $200 mm leaving the current borrowing base at $1.18 B.
  • At last check, their facility was $1.5 B with a borrowing base of $950 mm
  • Modest positive.
  • I would add in an unrelated to the borrowing base thought that I am likely to step up and add $30 November calls well in advance of earnings. I have a sneaking suspicion that HK will again beat on the production line and announce more catalytic well news from the Eagle Ford.

 

After the close today we get reports from coal player WLT and driller NBR. The earnings calendar for this week has been added to the Calendar tab.

Odds & Ends

Analyst Watch:

  • Citi ups targets on the E&P MLPs:

    • LINE goes from $23.50 to $27
    • LGCY from $15.50 to $17.50
    • EVEP from $25.50 to $30.50
    • BBEP from $9 to $14

 

133 thoughts on “Tuesday Morning – Lots of Non-Energy Earnings”

  6. Reef – Moffett is smart, Blueberry hill discussion was a bit convoluted but it looks like they can get to a lot more sand updip next to the escarpment with this second sidetrack, sounds like they will know something today, don’t know when they pr it. Is EXXI in that well or Davy Jones or both?

  7. I’m going to take a start position today or tomorrow in the HK $30s, small, adding on weakness. I think the potential for them to beat is high. I think the possibility of them dropping another deal on the market is exceedingly low. They don’t need the money, not yet anyway, and they know the Street would be hard on them were they to try to go back to the trough right now. I could see them doing a deal for more acreage in the Eagle Ford and it has been rumored they are doing something with SFY there.

  9. TechTrader out with a 55/45 call to SHORT the morning rally. But, that is probably an early trade.

    HeadTrader thinks we grind higher, after the morning pullback.

    Tough for people on the sidelines to buy in at these levels… everyone wants a pullback. HT says people have been waiting for that since SPX 800…

    Credit/debt market higher this morning. M&A is making everyone perky.

  11. COP CEO on the tape this morning, don’t know where he is speaking, but saying things like he does not see Big Oil M&A accelerating here, says political environment is not in favor of it.

    He also says the biofuels mandates are wrong – big duh there.

    He says the world will have trouble producing 100 mm bopd – yeah, that would be tough.

    Thinks oil prices will not stay weak for long

  12. Thanks Reef – no longer up to date on them, balance sheet still troubled? Will check to see how big they are at Blueberry Hill. Wow this thing has run.

  14. BEXP. It’s not often you see a secondary announced, and not a small one mind you but 17% of the outstanding common before the overallotment, and see the stock even with the close before the announcement the next day.

  16. BBEXP doing marketing in NYC for the deal. Attending lunch of Wednesday. If anyone has any questions, let me know.

  17. Jat – Best estimate of gross EUR Rough Rider if we assume everything going forward is 28 stage lateral. Best guess EUR of Three Forks on same acreage.

  19. It would be nice to see SD break that bearish “head and shoulders” like pattern forming on the traditional daily chart, trades toward $15 would improve the technical structure quite a bit from here…

  21. Feels like the calm before the energy earnings storm begins in earnest next week.

    Jerome – watching SD, would like to add closer to month’s end.

  22. BTU coal markets insights:

    China and India continue to lead the way for coal growth.

    China is structural short met coal

    Sees prices rising met and thermal coal

    Sees the world chronically undersupplied for met and thermal coal by 2014.

    …

  26. My favorite met coal stock is WLT. They have maybe the best quality met coal in the world. After the spin off of WAC, they are a pure met coal stock. They are near the gulf, so they have much less transportation issues than other coal stocks. However, it has had a run. From the low of 11 to the current price. I think there are better bargins in the coal space, but on any correction always keep WLT in mind.

  28. I bought more MMR Nov 10 today. At .35 I think it is a decent spec. Like I said yesterday, Jim Bob has had alot of success recently with Flatrock and other structures. I am giving him the benefit of the doubt that this could be a really big find. Of course this is the kiss of death and I might have scuds on my hands as Z would say.

  29. CCJ breaking out on big volume this morning…uranium/nuclear…not sure that belongs in here but noted that big move

  31. CCJ – used to loosely follow it, have not for some time.

    Oil off a buck with a falling equity market and a very slight move up in the dollar.

    NG still hanging onto a $5 handle.

  32. Re:#24, WLT has really ripped since retracing back to just above long term P&F trendline support at $54 in the beginning of Oct . Currently on a buy signal, like a number of stocks, it’s forming a nice ascending triangle on the daily chart, and trading right up against resistance today at $67-$68, there is a convergence of support at $59-$60. Current price objective on the current buy signal is $75

  33. re 26 – agreed re WLT, good to have the homebuilding/financing sub gone, big earnings growth picture

    2008 4.37
    2009 2.40
    2010 5.96
    2011 7.99

  34. jivey – What’s the latest update on Cigar Lake for Cameco? That’s the biggest driver for that stock. Was it an update on the dewatering?

  36. All the uranium plays are up 8% so spot price probably jumped or there’s some news about some country approving some nukes.

  38. Watching the BEXP netroadshow right now… something makes me think they will price this at an even $10.00.

    Latest well… think less than 1 yr to payout. Wow.

  41. John – guess Wednesday or Thursday. I would count on the analysts in the syndicate to have new numbers out by Monday.

  44. Hmmm, can’t get that roadshow to launch.

    J – thanks, 100% better

    RS – No, not really. I put some comments on the refiners in the post…basically want to see long lasting demand.

  45. Z – These folks hacked your site this am and borrowed material!

    Dahlman Rose & Co, LLC – Reiterate MMR: Buy – Price Target: $11
    MMR: [WSS] – 10-20 9:40 AM[Contact: Institutional Trading – 212-920-2940] Reiterating our BUY rating and raising up our price target to $11/share….

  48. BEXP CFO is making me laugh… when he refers to their “conservative balance sheet management.”

    Their Unsecured Debt is rated Ca/CCC and their bank line almost killed the equity a few months ago. How they can say “conservative balance sheet management” with a straight face, is beyond me.

    That said, I did buy some calls here… but, “conservative”… ha! Give me a break.

    Note on leverage — in a recovery scenario, the most leveraged company has the ability to return the most on equity. But, that return comes with a big increase in financial risk.

    “Conservative”… still chuckling over that.

  49. BSJ – It wasn’t exactly news when they wrote it. Stock trading off a little more than the group but everything that has run harder is falling harder today.

    BOP – yeah, that’s a good one.

  52. V – yeah and the S&P doesn’t like it, taking a bit of a header although after the move we’ve had its not surprising.

  53. ZTRADE:

    HK – Added (10) more HK $30 November calls (HKKF) for $0.60 with the stock at $27.40, and the group and broader indexes off on the housing data out this morning.

  54. BEXP — everything is riding on their getting a good chunk of equity done at a good price. They won’t be able to fund next year’s aggressive drilling schedule on cash flow and bank debt alone. They are pretty darn promotional, in the roadshow. But, if they get it done, there will be a substantial step in in production next year.

    z, would love your take on valuation here.

  55. BEXP = not cheap on 2010 CFPS or TEV to EBITDA. Gets cheaper when you start looking out to further years or at potential reserves.

  56. BEXP is trying very hard, to get you to look at the potential reserves here. Maybe stock investors take the bait… And at some point, those reserves will be converted to cash.

    Interesting thing is, other e&p operators are NOT willing to pay up for reserves. At least yet. That is why KOG is still going it solo.

  57. ZTRADE:

    SWN – Added (5) SWN $50 November Calls (doubles the TKQKJ position) with the stock off 2.6% at $48.90. Natural gas is trying to close north of $5 for the first time since August. Earnings come out at the end of the month here.

  58. The mmr nov and dec 5 calls are very cheap

    if stock goes to 10 you make 1.50 on 3.50 purchase while the 10’s expire worthless

  60. bexp is 9.87 as I write , so i dont know how they sell for 10.00.

    The underwriter is going to get 45 cents or so.

    I bet they would be happy to net 9.00 with maybe a 9.50 offer price bwdik

  61. Bill – yep, part of why I’m adding to HK and SWN. Stocks are just trailing the market moves today. If we get a close above $5 on natural gas things could get a little more differentiated with gassy names starting to do better. The Street is looking for a 23 Bcf injection on Thursday making it look more and more likely we will top out below the 3.85 Tcf mark. A lot of bears have been in the camp that we’d see 4 Tcf.

  63. The price will be determined by how their book is built and what kind of discount they and the underwriters decide to make to the new shareholders to the closing price, if any. So if it priced at $10 it would be $140 mm minus the fee of the underwriter. That fee does not impact the stock price, just the deal proceeds.

  64. BEXP is supposed to price tomorrow, 10/21… so, won’t have to wait long to find out.

    10.00 was just a guess… for a while, it looked like the stock was pinned there. bwtfdik. Market no likee-likee the housing data. Ha. It was just time to sell off. So it did.

    Also, fwiw, with recent earnings releases, i think the mrkt leadership mantle passes from the financials to the industrials at this point in the cycle.

  65. BOP – They are pricing it after the close tomorrow, right?

    Agree completely re Housing Data. Honestly we need to work off inventory there, not build more houses to go into inventory.

  66. z — re BEXP, would assume it’s after close tomorrow. Unless they struggle with the book, of course.

  67. z — also, they are finding out that there is FRAUD >>gasp<< in the "first-time homebuyer tax credits." So, maybe (?????) they put the expansion of that (stupid) program on hold.

    Nah. People LIKE "free stuff." And Dodd is more than pleased to provide… given his difficult re-election race.

  68. I have a feeling they won’t have trouble filling that book up. It’s not that big a deal and there are a limited number of vehicles with sufficient float AND leverage to the Bakken.

  70. Short cover time. NG up 32 cents at $5.15. I may have had to eat my hat for that brief trip into the $2s but at least I didn’t say it was going to $0.

  71. CAD$ down over 2 cents and is a major contributor to the dollar index move because they said they aren’t raising rates until mid-2010 to curb speculation that they’ll follow Australia.

  72. BOP – FWIW, I’m not that big in the BEXP position. I’ve owned the stock for a little while now, but never added to my initial position. The calls give me leverage but could expire worthless obviously. But you usually don’t see post deal announcement strength like we saw here yesterday and the guys on board won’t be restricted immediately following the deal so I’d expect upgraded NAV targets galore.

  73. BEXP not my fav Bakken company. And that “conservative balance sheet” comment cemented my luke-warm impression. That said, the new shares have a 90-day lock-up and the stock should trade up, after they are done.

    That’s the Plan, anyway… Plan the trade, trade the plan.

  75. BOP – conservative is a relative term depending on what you are looking at. Their debt to cap is high, largely because their cap has been pummeled. EBITDA to interest coverage is adequate. Conservative? Not really, but adequate this year and will improve greatly next year (EBITDA set to more than double on higher production and oil prices).

  76. BOP # 48: constant source of amusement about how some mgts forget the bad parts so quickly. Must add a black mark to BEXP’s mgt score though.

  78. RMD — makes BEXP just a short-term parking spot for me.

    Long term parking is found at KOG… still no debt there and ramping production. Less “balance sheet risk,” but more operation risk. Will feel better (I hope) after they report on well pair 7/8.

    Curious lack of the usual whispers about well results. Still, haven’t heard anything bad, either. Just two more weeks (at the most) to wait on an operational update.

  79. RMD – I lived in the same town with them back when I used to do this for a living and yet didn’t cover them. My perception of them, up until the last year or so, was “also ran” or “gang that couldn’t shoot straight”. Not impugning their honesty with that last comment, just saying they could never get their game together. They still seem promotional at times but now I think they are onto something. So management is coming up in my book, not going down. We all have our bias for and against things in the market but I do try to change a bit with the changing times. Otherwise, I end up going with my old thoughts when stories change, like ATPG, which I called a “bottom feeder” back when the stock was $8. Well they used to be but there’s a lot more to that story now as well.

    As to BEXP, we knew they had to do a deal, too little cash, (drilling actually stalled this year) and too much acreage. Despite the dilution they are better off with the money in hand.

  81. OK… i’ll back up a bit. Now that the credit market (and stock mrkt) has opened up, KOG is higher risk than BEXP, as their acreage is much more concentrated (to say the least). But, it just irritates me when a Ca rated company talks about their “conservative balance sheet.” Debt investors would have laughed the CFO out of the room.

    I am comfortable with Lynn’s honesty and contrasting lack of hype vs BEXP. But you’re right, z, can’t let prior impressions get cemented in stone.

  82. BOP – I hear ya and I’m not defending them in the least. Irresponsible use of grammar is a terrible thing.

    Feels more like a buyers strike than a stock market sell off. Again.

  83. sheesh, z…. it’s not just “irresponsible use of grammar.” I mean, what if those guys actually BELIEVED that statement.

    But, the horse is dead. I’ll stop beating it now.

  84. re 83. See what happens when I leave off the lol? lol.

    NG up 7%.

    Crude is weak today but it’s also contract expiry and the equity markets are off so go figure.

  85. RMD “constant source of amusement about how some mgts forget the bad parts so quickly.” They were portfolio managers in a previous life.

  88. ZTRADE:

    MMR – Added (5) November $7.50 calls (MMRKU) for 1.78 average with the stock jumping up to $9. This is a pure speculation on near term well results (see post for details).

  89. 88 – someone thinks they know something so I’m taking a small position in case they do. Call it a wildcat trade. The well closest to TD has large implications vs their current booked reserves and their prospect inventory.

  90. z – any comment on gmxr rebound today? That deal doesn’t price until thursday i think – stock just trying to find a balance?

  91. GMXR – yeah, I think so. One thing there I don’t have a handle on is their required activity level to get all their acreage held. That’s a lot of shares to kick out now to drill for natural gas. So I assume they much need to crank up their drilling a notch. Recall that these guys were going to be one of the big growers this year, then cut estimates a couple of times as their capex fell with gas prices. With the new rig adds they can go back to growth mode and they are largely hedged at 6.50 in 2010 which helps. Still, a lot of dilution to drill for gas at this time.

  92. #91 – i think most of their haynesville acreage is HBP. I think i remember seeing that in their most recent presentation. I’ll take a look

  93. Group showing some signs of life. Aside from CLR, most of the green or close to green on my screen comes from the gassy names (GMXR all day green and getting greener), UPL for the last couple of hours, and now RRC just tipping positive. Again, would really like to see gas close north of $5 in 20 minutes.

  96. Tepid, greening (or de-reddening) of the group underway, largely contingent on the broad market.

    1520 – good catch, I was looking through that same presentation. It sounds like their plan now is just to crank volume growth back up. Availability and application of capital are the only constraints on Haynesville focused production growth at present …lots of running room in the play itself.

  97. GMXR-to be priced Thur-Z-any view on what would influence the price?

    Thanks.

    BTW, glad you are feeling better-schools here are getting slammed with flu illness, a couple are closing their doors for the week, over 20% absentee rate-no one has any flu vaccine left.

  98. Re refineries from earlier, India’s Reliance Industrie is in talks with VLO, SUN and Flying J to buy refining assets in the U.S. This is behind the strength in the group today. Not going to chase that.

  100. GMXR – It gave up a lot yesterday and is bouncing today. Pricing will be dependent on the market tomorrow and I’d bet it comes at a 5% discount to tomorrow’s close. Interesting to see people doing road shows again after so many spot secondaries. That could imply less demand for new shares right now but I think is instead a function of managements wanting to get out their story to a broad audience.

  104. Anyone seen Kass commentary? All I find on news searches is stories about his son settling with the SEC this week. Wondering if he has new bearish commentary or positions or if he is going long in this area.

  105. bill, if you have a sec and care to, can you expound on the PXP thesis? thank you!

  106. Looking for crude to be a possible big build tomorrow. Going to ride it out in my oil names as I think you will see an increase in distillate demand and a bigger than expected draw on stocks there and am likely to add on weakness.

    Would someone post API after the close? Thanks.

  107. SD looking good to go on a chart to my layman’s eyes. Still a little early for me to play for Crusader. Waiting and watching.

  111. Thanks RS.

    And yeah, site has been slowing down a bit. I’m about to go rattle someone’s cage.

    BOP – how so??

  112. Not really sure what Kass is saying with that one… maybe something like “your time will come bears, you’ll get yours bulls!”

  113. just feels like there is (are) some shifts and rebalancing and rethinking taking place… can’t put a finger on it. But, just a weird day.

    Tomorrow might be weird too… as shifting usually takes a few days. You didn’t feel this, z?

  116. BOP – boring yes. volumes abysmal yes. not sure if a lot of thought was going into it. Felt like a buyers strike. Revenue forecasts are getting more upbeat but 3Q is looking like another quarter of “make it on cost cutting”. Lower costs will help the E&Ps too but they will also have sequential revenue growth making energy a standout this quarter.

  118. CREE up in a/h

    (HeadTrader keeps sending me these… it’s what people who watch the entire mrkt are watching)

  119. Yhoo EPS of $0.13 vs $0.07 expected. They beat the heck out of revenues as well. Analysts happy to be sandbagged these days.

  120. HT saying SNDK is H-U-G-E… mainly b/c it’s a consumer play, rather than an enterprise play

  122. API:

    CRUDE: UP 3.847 mm barrels – probably a combo of higher imports and lower throughput.

    GASOLINE: DOWN 0.587 mm barrels

    DISTILLATES: DOWN 0.998 mm barrels

  124. Z, I did a search looking for your explanation on how to interpret the EIA numbers…having trouble finding them.
    Anyway you can post this in the “dictionary” section?

  125. #119 YHOO: off subject but has a similar P&F to CHK at 24, a series of tops charts have been blasting off from.

  128. November crude contract expired, someone let CNBC know.

    December contract trading at 78.64, down about 50 cents since API.

  130. Z, why do you care what Kass views are? You seem to being do fine without them. Kass reminds me of Elanie Garazelli, who called the 1987 stock market crash. After that call everyone hung on her every word. I know from personal experience, I would not have bought WLT, HK, or DNR, last fall if I would have paid attention to Kass and his opinions.

  131. Kass actually turned bullish close to the turn in March. Not bad considering he predicted the crash well in advance. In other words, he’s not a one-hit-wonder.

    But has been wrong lately.

  132. Baylor – Nope, not much a move down in oil yet. The API imports vs end inventories don’t make a whale of a lot of sense this week.

    BSJ – call it morbid curiosity mixed with a sense that he’s not wrong, just early as he says. He has good reasoning in general for his currently bearish views and I like to see if he has added anything new to his picture.

  133. BOP – 67 – LOL

    BEXP – bought some today at 9.87 but punted them when I saw the offering news – I’ll wait and see how it prices; remember how HK lagged for a long time after their deal.

    Market – I still think this market may pause and selloff into Nov/Dec; so I am not prone to chasing stuff. Of course that attitude has resulted in my missing opportunities; but so be it.

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