Tuesday Morning

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Market Sentiment Watch: Back to cautiously optimistic as several of the equity indexes do the impossible, making new highs while the year is not yet done. Dow Theory folks are now looking for the Dow Transports to reach a high as well. News flow picked up on cue in the energy space and we are likely to see a bit more flow this week before things really dry up in advance of Holiday light trading next week.

  • Eco Data Watch:

    • PPI: 0.3 vs 0.5% expected (core of down 0.6% vs 0.1% expected)
    • Industrial production for October: 0.4% expected
    • Capacity utilization: 70.7% expected
    • Home builders index (expecting 19 at 1 pm EST later today, vs 18 last month)

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today - BEXP, HK, BofA Merrill Energy Conference Schedule, Catalyst Watch
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $19,900
    • 55% Cash
    • The Current Holdings Tab Is Updated.
  • Yesterday's Trades:

    • WLT – Sold the November $60 Calls (WLTKL) for $10, up 26%. I continue to hold the $70s. And plan to roll into December on next set of market red days.
    • WLL – Entered (5) December $65 Calls (WLLLM) for $2.65 with the stock at about $63.40. I plan to exit the $65 tomorrow and the $60 November strikes on Wednesday. WLL speaks at Merrill Lynch’s Energy Conference on Wednesday and they may have news on drilling in the step out Bakken prospect, Lewis and Clark.
    • APC – sold the $70 November calls for $0.05, down 95%. Still like the name, just doing a little clean up and these were too far out of the money to matter.
    • HK – Added (10) HK $23 November Calls (HKKT) for $0.55 with the stock just under $23. Theory is the stock has been neglected since the earnings call due to weak gas prices and is due a move up. They speak Wednesday at the Merrill Energy Conference.

Commodity Watch

Crude oil rallied $2.55 to close at $78.90 yesterday on fresh 15 month lows in the dollar and new highs for the broader equity indexes. So nothing new on the fundamentals front. This morning crude is trading down $0.25 to $0.50 on another quick rebound in the dollar (on its way to lower lows).

  • Early Read On Oil Inventories:
    • Crude: UP 730 K
    • Gasoline: Up 410 K
    • Distillate: DOWN  775 K
  • IEA Watch: Not seeing enough real demand recovery in OECD countries to justify an increase in OPEC production levels at its December meeting.

Natural gas leapt $0.22 (5%) to close at $4.61 yesterday. A forecast that shows much of the country getting colder, along with the rally in oil drove the advance.  The front month contract now looks like this (kind of like a double bottom).  This morning gas is trading up about a dime as cold weather reaches the South and Southeast.

  • Imports Watch:  7.6 Bcfgdp, up 0.4 Bcfgpd from last week; off 0.1 Bcfgpd from last year.

    • Canada: Still holding near its 2009 lows at 6.1 Bcfgpd.
    • LNG: Bounced up to 1.5 Bcfpg, up 0.9 Bcfgpd from last year's depressed levels.

Crack Spread Update

Key Takeaways: Horrible. Nothing to see here. Move along. I will just keep watching this until I see real signs of life in demand.

Stuff We Care About Today


BEXP Announces Another Rough Rider Well

  • This was one of 4 wells BEXP promised to have completed by year end and was on the catalyst list. 
  • The Lee 16-21 #1H

    • another 28 stage frac, north west Rough Rider area of the Bakken
    • 24 hour test peak of 1,544 BOE

      • 1,341 bopd
      • 1.22 MMcfgpd
      • This is another 24 hour test, consistent with BEXP practice; we'd like to see longer IP tests, 7 day average ones, and 30 day averages for the existing Bakken wells. 
    • 31% working interest, increases later with payout, (USEG)'s 3rd well with BEXP; last 2 well announcements have caused considerable movement in USEG (they are in 6 wells here with an option for more)
  • Completion operations turn to the next 28 stage Rough Rider well, the Strand well (see Catalyst List below), and if all goes according to plan we should have results there around month end.
  • Nutshell: Another positive for the stock, and it may give me an out for my dead in the water November $12.50 strikes but probably only briefly. I continue to hold the common here.


HK November Presentation Notes

  • HK added a new presentation yesterday
  • No new well results listed.
  • Presentation shows reserve potential of 31.6 Tcfe, (up from an estimate of 26.5 Tcfe in early September).

    • Haynesville is about half of that (15.7 Tcfe)
    • Eagle Ford (8.9 Tcfe)
    • Lower Bossier (4.1 Tcfe) where they have yet to drill a well but will in 1Q10
    • Year end 2008: Proved reserves of 1.4 Tcfe
    • Year end 2009 is likely to be at least 2.5 Tcfe
    • Meaning potential reserves are > 12 times 2009E proved reserves


  • Haynesville Shale:

    • Acreage still at 345,000 net acres
    • Gross production went:

      • From 450 MMcfepd gross as of November 4th.
      • To > 500 MMcfepd gross as of November 16th.
      • This is how you set out volume guidance and then beat it.
  • “Red Hawk” Oil Play Announced

    • Fairly shallow, Eagle Ford Oil Shale Play, thinking thickness of 80 to 120 feet
    • Northwest of their current Eagle Ford activity, 89,000 net acres in Zavala County, Tx (due north of tests in the E.F.S. by (APC) and (TXCOq)
    • First well spuds December 2009.
    • $4 mm spent so far to data so the land has come at a cheap, cheap $45 per acre.
  • Hedges:

    • 2010: 60% of expected volumes with an average price of $5.93.
  • Budget:

    • Same as on the 3Q call. No escalation should be viewed favorably.

Nutshell: Most analysts should like the idea of gassy Petrohawk getting a touch more oiled up.  The market has with (EOG) and everyone else over the last two quarters from (BEXP) to (NFX) who has made the push to get more liquids rich. This is certainly early stage but the market should give the stock some option value on it, especially in light of the post 3Q release sell off, and due to the fact that HK has been a first mover in two of the most recently announced gas shale plays.


BofA Merrill Energy Conference Schedule

  • Tuesday: All times EST

    • CXO - 8:15
    • BRY - 9
    • CRK - 9:45
    • CLR - 10:40
    • RRC - 11:25
    • SWN - 1:30
    • XEC - 2:15
    • SD - 3:55
    • MRY - 4:40
  • Wednesday: HERO, COG, APC, EOG, WLL, STR, CLB, FST, HK, BAS, GMXR   


Shelf Part III - tabled until tomorrow - not quite ready and there's no rush.


Catalyst Watch: Revision for week




Odds & Ends

Analyst Watch:

  • (DVN) upped to Outperform at Wells
  • (DVN) target upped from $75 to $85 at FBR
  • (HES) upped to Buy at UBS
  • (XOM) upped to Overweight at Barclays
  • (SPWRA) cut to Market Perform at FBR

Worth A Read Watch:

125 Responses to “Tuesday Morning”

  1. 1
    zman Says:

    Saw TPH’s note on HK’s presentation. 1 paragraph starting out with them being less worried about the need for asset sales then others with a single line mentioning the oil play. Sigh.

  2. 2
    zman Says:

    That article at the end of the post on congressional pay is interesting.

  3. 3
    kyleandy Says:

    z – u use the term step out in your text today. could u pls define that?

  4. 4
    zman Says:

    U.S. capacity utilization: 70.7% vs 70.5% expected.

  5. 5
    isleworth Says:

    Howard Weil resumes coverage of UPL, PXD and PXP with an Outperform and sets tgts of $70, $54 and $37, respectively. The firm also resumes coverage of BBG and PSE with Market Performs and sets their tgts at $36 and $22, respectively.

  6. 6
    zman Says:

    A “step out” well means different things to different people. But in general, by that I mean a well that is not part of a developed play, not part of a pattern drilling program. A “step out” from where they have been drilling.

    Often you will see a big well drilled, followed by a second well in close proximity. In a shale that second well is less risky as you are just offsetting the producing well. In a conventional play, you might be drilling close to the first well in an attempt to get up dip, to get to a higher take point on a structure like an anticline (think underground mountain range of one type of rock loaded with oil, capped by another type of hydrocarbon impermeable rock that acts as a seal). That’s often also a lower risk type of development well, basically an appraisal well. So the first well is higher risk, more like exploration and the second well is derisked by the well control you get from having already drilled that first well.

    Thinking of the anticline example again. A third well might be drilled miles away to test the size of the structure. This would be called a step out as well.

    In the instance of this WLL well at their Lewis and Clark prospect area, I call it a step out as it is in fairly uncharted territory of the Bakken (not produced from the Three Forks it is testing) and it is about 8 miles from the nearest test they have done, a short later.

    In this case, I think they’d call the well exploratory (which I call a higher risk step out since they do have well bores in the area penetrating the TFS but not producing from it).

  7. 7
    zman Says:

    Thanks Isle

    Analyst Watch: SWN – Howard Weil ups targer from $55 to $58.

  8. 8
    zman Says:

    Dollar up, crude and markets down at the open.

  9. 9
    BirdsofpreyRcool Says:

    Caught in some pre-mrkt drama… will post TT and HT in a sec.

  10. 10
    Nicky Says:

    Morning all.

    Maybe one more high is needed here before we get a correction but equally it could be done. If we are going to see a new high it should be today/tomorrow. We already made it into the target area yesterday. New highs could do 1116,1118 or 1121.
    Support at 1102.

  11. 11
    kyleandy Says:

    z – thks so this is an important well, as it would open up a new area if successful?

  12. 12
    BirdsofpreyRcool Says:

    TechTrader calling for a 60/40 LONG trade for today… with the odds favoring a late day rally.

    HeadTrader is back to “buy the dips ’til proven wrong”

    HT also point out the following — someone told me the 50% retracement from 07 high to 09 low is at 1121….and to add to the voodoo he said…”today also is exactly 50% of the # of days too”

    Then there is more reports on the Port of L.A. cargo movement — http://www.latimes.com/business/la-fi-ports17-2009nov17,0,60830.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+latimes%2Fbusiness+%28L.A.+Times+-+Business%29&utm_content=Google+Reader

    Finally, HT wants to share this — French hotel offers guests a night as a hamster; a hotel in the French town of Nantes is offering guests the chance to live like a hamster. For 99 euros ($148.10) a night, you can eat hamster grain, run in a giant wheel, sleep in hay stacks in what is called the “Hamster Villa”. Reuters

  13. 13
    zman Says:

    Kyle – yep, about 107K net acres in the area. Lots of well bores here from older wells that went through the TFS. Their plan is to re enter those, cut a window in the casing and drill horizontally. It’s a bit a cheaper than drilling the vertical and the horizontal. First well here had some completions issues and tested 1,000 boepd on a 17 hour test. This is the well the CEO commented on on the 3Q call as “making a believer out of me”. We shale see. He said mid November and they speak tomorrow. Ya never know, if they have a problem it could be longer. They are permitting more wells here. So if it works look for upped NAV’s by analysts as they should have little to nothing in their valuations for the Lewis and Clark area at present.

  14. 14
    bill Says:

    is there a link to BofA Merrill Energy Conference webcasts

  15. 15
    kyleandy Says:

    z- anybody else in this area that would benefit from WLL’s possible success? i was listening to cc when ceo made that comment, so i like their chances.

  16. 16
    zman Says:

    Bill – I have not seen one, I am going to listen via company websites.

  17. 17
    zman Says:

    Kyle – Not that I have found. At least not in the recent age with these intentions. They mentioned their working interest in these wells would be high although not 100%, will look on the ND site to see.

  18. 18
    BirdsofpreyRcool Says:

    from an energy desk morning note — …2 fleet statuses out (HERO, ESV)…HERO reactivated 1 more GOM Jackup…now has 10 of 11 mktd units there working. Compares to 9 of 10 last month. Also ESV reactivated another GOM jackup, on top of the 2 we highlighted last week. Now ESV has all 5 marketed GOM jackups working.

  19. 19
    bill Says:

    bdi up again


    nm at a 1 yr high ..they report tomorrow

    im long the dec 5 calls at bid 1.30 ask 1.40 witht he stoxk at 6.35

  20. 20
    zman Says:

    Thanks for the levels Nicky.

  21. 21
    BirdsofpreyRcool Says:

    Nicky — seems like 1121 is pretty important… does it stand out to you?

  22. 22
    zman Says:

    Having no luck finding a link to all BofA Merrill presentations. CRK does not have it on their site, CLR does.

  23. 23
    zman Says:

    BOP and Bill – thanks for the transport story links.

    Crude and NG back to flat. Dollar rebound looks kind of stalled until the Housing Index comes out at 1 pm.

  24. 24
    Nicky Says:

    #21 – Yes BOP for the same reason HT said! Only trouble is every man and his dog has it on their radar which likely means we either overshoot or undershoot!

  25. 25
    bill Says:

    sandridge new slides for boa


  26. 26
    zman Says:

    CLR presentation in 5 minutes. Generally he’s a pretty boring speaker but worth the tedium of listening.

  27. 27
    BirdsofpreyRcool Says:

    Nicky — we are all so goosey about where the mrkt is now… and when we find ourselves in precarious fundamental positions, it seems like ALL EYES are on the technicals. So, it’s extremely helpful to have input from both angles… fundamentals and technicals. Thx again.

  28. 28
    kyleandy Says:

    z -u get on CLR – i can not

  29. 29
    Popeye Says:

    Uranium shortage



  30. 30
    zman Says:

    Yes, CLR just came on.

  31. 31
    kyleandy Says:

    just got on

  32. 32
    zman Says:

    Group back to “risk assets stink” mode. Ugh.

    CLR call a snoozer.

  33. 33
    zman Says:

    Fed’s Lacker – weak spots in economy can’t impede tightening. What a bunch of mixed message types these guys are.

  34. 34
    zman Says:

    CLR presentation – nothing to make me want to run out and buy it right now.

  35. 35
    zman Says:

    I’m with HT, dip buying mode still working. This looks like a bit of PT on the dollar move and little more. Volumes even lighter than yesterday.

    Format for the BofA conference is allowing a long time for Q&A, almost like your traditional after presentation breakout session, which is pretty cool. Hopefully, HK and WLL, who present tomorrow, will keep their presentations short enough that the Q&A can go on this long.

  36. 36
    VTZ Says:

    RE 33: Can you trust anything coming out of their mouths anymore anyways?

    One is talking about the extended period being even longer than they thought, the other saying they can’t impede tightening, the other commenting on asset prices which has nothing to do with their mandate, Bernanke only talks about the low CPI which allows them to keep rates this low…

    Each of them has their own line depending on whether they are slightly more dovish or hawkish and together they just sound clueless.

  37. 37
    zman Says:

    VTZ – yep. Some days it seems you have the party line being towed, then the next minute it sounds like they are diametrically opposed.

  38. 38
    rseidman Says:

    Z: Re: 35,Sorry for my ignorance, but what does PT stand for?

  39. 39
    elijahwc Says:


  40. 40
    Nicky Says:

    VTZ – a lot of talk overnight out of the Fed about the stock market not being in a bubble with one of them then saying that however a bubble is often not clear until after the event. Yellen saying the stock market is not massively overvalued – what the heck does that mean? That is overvalued but not massively? I didn’t think it was the Fed’s job to comment on the stock market but something tells me they are a little spooked.

  41. 41
    zman Says:

    Re 38: my bad, profit taking.

    Thanks Eli – does that have links to the presentations?

  42. 42
    Nicky Says:

    No V shape recovery for Goldman Sachs:

    1102 holding again. Pitiful by the bears.

  43. 43
    Jay Says:

    Shale-Gas Skeptic’s Supply Doubts Draw Wrath of Devon Energy, Chesapeake


    Berman with a bit more detail.

  44. 44
    elijahwc Says:

    No, belive you have to email corp events for permiting. Bet they would let “Energy Brain” in.

  45. 45
    Nicky Says:

    Looking more and more like a wave iv with v up still to come.

  46. 46
    VTZ Says:

    RE 40 – Spooked but it’s not going to stop them because they only look at CPI as an indicator for inflation.

  47. 47
    VTZ Says:

    Note that gold isn’t buying this move in the dollar.

  48. 48
    zman Says:

    Jay – I’m no geologist but I have dealt with them in the past, and with reserve engineers and I know ones who think Berman is off his nut. I suppose if he were right however, it would be good for natural gas prices, lol.

  49. 49
    zman Says:

    V – yeah, gold seems to do that lately…takes the stance of “yeah, sure, whatever, I’ll just wait for tomorrow’s trading” on days like this. By the way, neither is oil.

  50. 50
    Nicky Says:

    if we trade under 1097 then likely the top is in and we just make a lower high in the next day or so.

  51. 51
    zman Says:

    Heating oil and gasoline are actually up today. Saw Platt’s inventory numbers are bigger than the ones I had in the post which were from Bloomberg yesterday. We should see a rebound in distillate demand and maybe a small uptick in refining or at least a flattening this week or next.

    BEXP news not moving the stock, pretty leaky on that press release yesterday. Would like them to put longer avg production data in their pr’s, especially if they are going to take the hype-drive way of posting each well (I think that’s a bit rookie).

  52. 52
    zman Says:

    Nicky – do you see us falling back below 1040 in the next down turn?

  53. 53
    zman Says:

    ROSE just about the only green on my screen. They filed an 8K with a new presentation but I flipped through it and saw little new from their 3Q update. Nevertheless it is up 3.6% on a day when everything is red. I continue to hold the common here.

  54. 54
    Dman Says:

    popeye #29 – I don’t have the numbers on uranium supplies but the article linked in #29 is certainly consistent with what I’ve seen about the future of uranium prices .. i.e. they will go up. The uranium market is obviously not your average metals market: there are all sorts of stockpiles that you’d have to worry about and which will distort prices until, well, they run out. I’ve seen assertions that any attempt to massively scale up reactor numbers would immediately hit uranium constraints, and this is why the 4th generation reactor crowd wants to use nuclear waste (eg from weapons production) as fuel instead. Or use thorium, which is a whole different story (= much more abundant).

  55. 55
    Nicky Says:

    z re #42. That is a million dollar question! It is possible, but not my preference due to cycles that the top we are about to see could be significant and be THE top in which case obviously we tank through 1040. I can’t discount it at this stage because we are about to see (or have just seen!) five waves complete to the upside and that could end the ‘correction’ off the March lows.
    However, it could just have ended the A wave of an ABC and we then see B take us down in a correction which could be small (1070 ish) or more significant (970 or below) before we move up to complete the rally in wave C. Not to over complicate things but rather than an ABC what we may be seeing is the end of wave 1 up, in which case wave ii could give us a decent retracement before the rally resumes in iii, iv and v. We don’t need to get too caught up in that because both counts point us in the same direction.
    The down cycle coming up is actually quite small so I would not be surprised to see a very small move down.
    So I am not being helpful really and we are just going to have to take it as it comes and hope things become clear as we move along.

  56. 56
    BirdsofpreyRcool Says:

    Yesterday’s Doug Kass… warning, it’s “really” annoying. But, agree that it is a great laundry list of what to worry about.


  57. 57
    zman Says:

    re 54 – around 1999 or 2000, I recall reading that many of the big, nuke centric utilities had 10 year contracts on for cheap uranium, contracts that they thought they would not be able to replace at such low levels. Those would be expiring soon. CCJ?

  58. 58
    Dman Says:

    #57 might also be worth a look at BHP & RTP: I’m guessing uranium is only a small part of their business now, but could present a lot of upside. Needs some homework though, eg how on how well their reserves are holding up etc.

  59. 59
    zman Says:

    BOP – Thanks. 2 minutes of my life I’ll never get back, lol. Sheesh. He’s busy making jokes while all of Gnome is burning.

  60. 60
    BirdsofpreyRcool Says:

    z — a PUN!! wow. That was pretty darn clever!!

  61. 61
    zman Says:

    ROSE over $16 now, up 7%, will go back and re look over that presentation.

  62. 62
    zman Says:

    BOP – It was just hanging there … couldn’t resist, but I don’t want to beat a dead gnome so I’ll quit now.

    Oil back to even, tipping green with the buck still very strong on the day.

  63. 63
    bloodystupidjohnson Says:

    On June 6, Kass said he was shorting the asset managers TROW and BEN. Check out the price then and now. Hope he had tight stops.

    Maybe Kass should worry about making some money for his partners.

  64. 64
    zman Says:

    BSJ – good point.

    ROSE – must be a broker comment, maybe follow through from a broker note yesterday that got carried away today or maybe they have Bakken news in the offing. Stock just keeps going up and I see nothing new in the latest presentation. I continue to hold the common, I may take some December calls soonish but the spreads are ugly so you have to be right and patient.

  65. 65
    zman Says:

    WLT – moving back up, looking to take out yesterday’s highs. Wow volatile but comfort level increasing here, still cheap at 11x 2010 and 8.4x 2011 EPS. Will reposition on a down day into Decembers next week. Will punt the remaining $70 strikes if it can’t retake that high by tomorrow.

  66. 66
    zman Says:

    The home builders’ sentiment index held steady at 17 in November, but October’s index was revised lower to 17 from the 18 previously reported. Economists surveyed by MarketWatch were forecasting an improvement to 19.

  67. 67
    zman Says:

    Homebuilders irritable about their business but encouraged about future sales.


  68. 68
    isleworth Says:

    DJ reports there is no real sign of a change in the tough conditions in global oil refining, said BP PLC’s (BP) head of policy and strategy Ian Smale. There remains a large overhang of refining capacity, particularly in Asia, and as long as that exists the market for refined products will remain highly competitive and margins thin, Smale told reporters on the sidelines of the World NOC Downstream conference in London.

  69. 69
    zman Says:

    Isle – right and the middle east is adding even more refining capacity, for internal and external use. Just makes it hard to figure out how the U.S. refining group comes back with some permanent capacity closures.

  70. 70
    zman Says:

    Nicky – It feels like the market just does not want to go down. Bears not able to get anything going despite a bunch of sub expectation data. Often the data isn’t terrible, its just not much, if any improved. I only bring this up because the broad market is large and in charge of what happens to the stocks for anything beyond about two day’s of time.

  71. 71
    zman Says:

    SWN call in 15 minutes. They speak at BofA today and UBS tomorrow. Probably nothing earth shattering at either.

    ROSE up 8%. Feels like news on the way.

    Crude up 40 cents, despite dollar advance and weaker markets. Products both up more on a % basis which is a bit odd.

  72. 72
    choices Says:

    BOP-Just a note: The 10% EXXI bonds are trading on Interactive Brokers @82 bid, 83.5 ask.

    I picked up a few more @ ask price. They seem more liquid and tradable now.

  73. 73
    zman Says:

    ROSE up 10%. Anyone see a note out there?

  74. 74
    jiveyjr Says:

    BEXP trying to get green again…took some common at $11.13

  75. 75
    zman Says:

    General melt up underway

  76. 76
    BirdsofpreyRcool Says:

    choices — Thank you for the update on the EXXI 10s. Not surprised they are more liquid now. Only about 60% of the bonds tendered were swapped into the new bonds. So, those bonds not swapped, were returned to investors/funds. Makes for more supply (and better pricing). However, at that 83.5 price, the yield to maturity (6/13) on those bonds is 16.25%. That is too cheap!

    Note from a boutique bond trading desk today on the EXXI 10s —

    “Can offer 3mm EXXI 10s @83. This implies 320bps of spread between the seniors and 2nd liens… we have maintained for the last month that 250bps would be too conservative and 200-150 bps should be fair value… that would imply 15% fair value on the 10s ($86.5)… these bonds are cheap”

  77. 77
    reefguy Says:

    SD- Buying at $10.10

  78. 78
    zman Says:

    SWN – nothing eventful so far on their call.

  79. 79
    milepost_43 Says:

    Could someone repost EXXI 10s CUSIP? thanks.

  80. 80
    jiveyjr Says:

    Energy XXI Gulf 10’s 6/15/13 cusip 29276KAC5

  81. 81
    jiveyjr Says:

    last traded 11/13 82.5 per Bloomberg…hope that helps

  82. 82
    zman Says:

    SWN call – uneventful.

  83. 83
    bcinca Says:

    Re: ROSE..purchased stock@16.20.wrote the Dec 17.5 covered call for .80…RSELW…have an up target of 17.70 and broker upgrade of $18…

  84. 84
    Nicky Says:

    Z re #70 – I agree. However, because the uptrend line is so clear, everyone knows it and can see it, if it were to break then I expect many to hit the exits at the same time and it could lead to an exaggerated move to the downside.

  85. 85
    BirdsofpreyRcool Says:

    Something to note on the EXXI bonds, they are in a kind of “ratings limbo” right now… S&P has put them in “selective default” (SD) due to the low price of the exchange. This might be the reason for some of the selling… but (to be honest) I just called my Dad and told him to scoop some up at the 83.5 price, so I think this is one of those “technical situations” where some funds don’t want to be caught with an “SD”-rated bond on their books.

    I’ll post the S&P ratings discussion in a second… so you have all the information.

  86. 86
    zman Says:

    BC – broker comment on ROSE today?

    Nicky – hear ya, conviction in the direction has much to do with the chart, little to do with much else. Almost feels like a pre vacation day today. Wowboring.

  87. 87
    BirdsofpreyRcool Says:

    The EXXI 10s are a “Big Boy Bond.” Your financial advisor would never tell you about these, nor put them in your account, due to the low ratings and technical nature of the “default.” Default is a bad word, as these bonds are not actually defaulted. They got caught in a ratings category that states that any bond exchanged at an 80-handle price must be a distressed or defaulted bond. This scares the Compliance Department at most mutual fund companies and financial advisors. But, this is the sort of bond trade that Hedge Funds live to see. Hence, this is a “Big Boy Bond.”

    Energy XXI Rating Lowered To ‘SD’ From ‘CC’ On Debt Exch
    2009-11-16 13:02:19.592 GMT

    – Energy XXI Rating Lowered To ‘SD’ From ‘CC’ On Debt Exchange –Exploration and production company Energy XXI Gulf Coast Inc. has completed an exchange offer for approximately 46% of its $750 million 10% senior notes due 2013, with holders receiving 16% second-lien junior secured notes due 2014 representing 80% of par.
    –We are lowering our corporate credit rating on Energy XXI Gulf Coast’s parent, Energy XXI (Bermuda) Ltd., to ‘SD’ (selective default) from ‘CC’.
    –We are lowering the issue-level ratings on Energy XXI Gulf Coast to ‘D’
    from ‘CC’.
    –We are removing the ratings from CreditWatch, where they were placed with negative implications on Sept. 4, 2009.
    NEW YORK, Nov. 13, 2009–Standard & Poor’s Ratings Services lowered its corporate credit rating on Energy XXI (Bermuda) Ltd. to ‘SD’ (selective
    default) from ‘CC’. We also lowered the issue-level ratings on operating subsidiary Energy XXI Gulf Coast Inc. to ‘D’ from ‘CC’, reflecting its completion of an exchange offer for a portion of its 10% senior notes $750 million due 2013. At the same time, we removed the ratings from CreditWatch, where they were placed with negative implications on May 22, 2009.
    “The rating actions follow the company’s announcement that it has completed the exchange offer for its 10% senior notes due 2013, and will exchange $347.5 million of its existing notes for an estimated $278 million of 16% second-lien junior secured notes due 2014,” said Standard & Poor’s credit analyst Paul Harvey. We consider the completion of the exchange offer, at a material discount to par to be a distressed exchange and, as such, tantamount to a default under our criteria (see related research). Additionally, Energy XXI Gulf Coast sold $60 million of the second-lien notes and 13.2 million shares of common stock in a private transaction.
    We expect to assign a new corporate credit rating on Energy XXI
    (Bermuda) relatively soon. We will base the new rating on our assessment of the company’s new capital structure and liquidity profile, as well as our view on the North American exploration and production industry.
    Although the tender offer and private placement should result in modest deleveraging, our preliminary expectation is that the corporate credit rating we assign will likely not be higher than the previous ‘B-‘
    prior to the exchange offer, and could be lower. Energy XXI will remain highly leveraged at a time of continued commodity price uncertainty, which will continue to weigh negatively on ratings.

  88. 88
    bcinca Says:

    SunTrust Robinson Humphrey analyst John Gerdes raised his rating to “Buy” from “Neutral,”ROSE…Friday

  89. 89
    zman Says:

    Ok thanks, don’t see anything more recent than that either.

  90. 90
    zman Says:

    Mixed message story on Iran’s nuclear capability.


  91. 91
    BirdsofpreyRcool Says:

    EXXI 10s — my Dad just bought some thru Schwab at 83.67353. Thanks again for the “head’s up,” choices!

  92. 92
    choices Says:

    Your welcome, BOP, but the initial call was yours and your followup certainly is helpful.

  93. 93
    BirdsofpreyRcool Says:

    choices — i’d have to say “good teamwork!” to all involved and keeping up with those EXXI 10s.

    Buying individual bonds is highly-underrated, by individual investors. Probably because, the brokerage houses sure don’t make it easy… and there are so many twists and turns to bonds, you have to dig.

  94. 94
    tomdavis12 Says:

    Z: WFT up on Mexico’s Congress approving 2010 budget. Nothing out of Pemex yet.

  95. 95
    zman Says:

    WLT moving well into new high territory, will punt the $70s tomorrow.

  96. 96
    zman Says:

    Thanks Tom

  97. 97
    reefguy Says:

    SD powerpoint. Pages 13 and 17 is why I bought today.

  98. 98
    zman Says:

    Ho hum day, market drifting. I heard little at BofA today worth typing about.

  99. 99
    zman Says:

    Reef – It’s has a lot of long term potential (2011 will be their step change year and drilling accelerates 2H10). I don’t see anything new in the presentation, did you?

  100. 100
    zman Says:

    Would someone post the API numbers after the close? Thanks.

  101. 101
    reefguy Says:

    nothing new, I think they got cold feet on Crusader to pay for page 17

  102. 102
    zman Says:

    SD B of A call starting in a couple of minutes.

  103. 103
    zman Says:

    CPC responds to my emails asking where the weather data is:

    “Unfortunately, the damage from last weekend’s production machine failure was more extensive than I had initially thought, and there has been some data loss. I am attempting to recreate the corrupted input data files, but this process will take time. I do not have an estimate for when the most recent degree day summaries will be available. I will send another e-mail with more information when it is available.

    I apologize for the inconvenience. The CPC has begun a project to design and implement new and improved degree day products, which will hopefully minimize these types of failures in the future.”

    So I’m flying with the crowd for Thursday’s numbers

  104. 104
    zman Says:

    Beerthirty – listening to SD presentation

  105. 105
    zman Says:

    SD Call

    3 rigs outside of Pinon drilling for oil.

  106. 106
    zman Says:

    Reef – I think that slide 7 is one of the more important ones over the long term for SD.

  107. 107
    zman Says:

    SD – well hedged on 2010 gas but also 75% hedged on costs in W. Texas.

  108. 108
    zman Says:

    SD – “We do not have enough rigs drilling in the U.S. to offset depletion”. Says we may not see it until early 2010.

  109. 109
    bill Says:

    dryships a/h is diluting shareholders again..needed to do to keep lenders happy

  110. 110
    reefguy Says:

    Slide, yes they have the best F+D play, with big upside. The fact it has CO2 and OXY is their partner suggests maybe a takeout by OXY??

  111. 111
    bill Says:


    you meant 75 % of basis for west texas??

    funny thing is that basis have narrowed to nil across the board due to rex

  112. 112
    BirdsofpreyRcool Says:


    crude -4367k
    gasoline -963k
    distillate +507k

  113. 113
    bill Says:

    down 4.4 thats alot isnt it?

  114. 114
    bill Says:

    sd slide 21

    75 % HEDGED IN 2010

    2011 0 HEDGES!!

    Key is ng prices improving so they can lay in 2011 hedges at 8 +

    slide 7 reflects current 1 year strip which is about 5.25 …at 8 bucks and 180 annual production ,(vs 105 now) we are talking great cash flow

  115. 115
    zman Says:

    Bill – they said this after the hedges, going to go back but I thought it was 75% of their drilling costs. Basis talk was after this. They have their own drilling fleet so I assume they mean consumables.

    Re the oil number, yeah, that would be fairly large. Not a lot of people pay too much attention to API but sometimes it’s close. This would likely mean that imports backed off again. Oil bumped up a little on the numbers.

  116. 116
    bill Says:

    >was 75% of their drilling costs

    I havent listened to it yet but they pre bought pipe and have a deal for mud and other consumables so they can drill for 2.2 m per well so the comment you made about the costs is 75 % locked in makes sense

  117. 117
    zman Says:

    Bill – they commented on the no hedges for 2011, with that comment I have above about the U.S. simply not running enough rigs to offset declines. Basically saying prices will go up, not if but when.

  118. 118
    zman Says:

    Bill – it’s a good call, more streamlined than in the past and more forward looking.

  119. 119
    zman Says:

    … with a lot less geology lesson and more big picture.

  120. 120
    zman Says:

    Just got sent the API data. Once again the end result and how you get there make little sense. They show imports up and refinery inputs down …. so naturally you get a big draw in crude. Makes no sense.

  121. 121
    bill Says:

    any comments on this


  122. 122
    zman Says:

    Bill – see 48

  123. 123
    bill Says:

    and old article on sd


  124. 124
    BirdsofpreyRcool Says:

    Bedtime with Market Strategist —

    Painfully Slow
    Today’s trading was the 6th slowest session for the Equity market in 2009. The Producer Price index was lower than expectations, indicating that deflationary pressures still linger. The year over year increase in Energy prices should begin to materialize in the November report next month. During the next several months, the expected year over year inflation pressures from Crude’s drop last year should materialize in the data. Currently, the PPI is approximately 5% below its 2008 peak. It will be interesting to see where it comes in when this data is reported. October Industrial Production missed expectations. The miss was attributed to Motor Vehicles and Parts as a result of September’s post-“Cash for Clunkers” sales dip. Since October auto sales bounced, the market digested the miss without any hiccups.

    The strength of the Dollar was a key theme throughout the day. The rally in the Dollar index peaked around noon and was up 1% before settling with a 50 basis point gain for the session. All in all, Equities performed respectably considering that at its worst level of the session (coinciding with Dollar strength), the S&P 500 was only down 60 basis points and the index closed flat during a day of relative Dollar strength. Despite yesterday’s strong gains, Commodities also managed to buck the trend of the inverse relationship to the Dollar today.

    Retail Detail
    Essentially, the only theme of note in the Equity market today was the news in the Retail and Consumer Durable & Apparel industry groups. Retailers tempered expectations for Q4 earnings and same store sales trends. Notably, Target highlighted what they are seeing this month, “Our early sales results for November provide additional justification for being cautious in this uncertain environment. While store traffic continues to increase moderately over last year, lower average unit retails are leading to a smaller average transaction, creating pressure on our top line sales.” The company also advised that many things will need to fall into place to meet the current First Call consensus estimate for Q4 earnings. While the news created pressure in the sector, overall, the market handled it pretty well. This is likely an indication that the market believes management is being conservative and lowering expectations bar with the intention of exceeding it later.

  125. 125
    PackMan Says:

    In other words, talking BS artists don’t like what Target or other retailers actually had to say, so they come up with a BS reason to ignore reality.

    If Target said customers were spending more and they expected a fantastic holiday season, they would be pumping the stocks like mad, instead of fading whatever mgmt said.

    What a bunch o hooey !!

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