Monday Morning

114 thoughts on “Monday Morning”

1. Test, test, test.

2. Article on changes to deepwater, basically saying JPM cutting earnings numbers on offshore drillers, recommends owning HAL and SLB.

   http://www.marketwatch.com/story/jp-morgan-trims-outlook-for-offshore-drillers-2010-05-24?dist=beforebell

3. HK analyst call about to kick off.

4. Sudden bouncing in natural gas, oil, and products in the last 20 minutes. Dollar still strong on the day by over a percent.

   HK going through the basics.

5. Z: NBR upgraded by CK Cooper (?) PT $26

6. HK – firsts. Long range growth shown through 2012 as detailed in post. Slide 13 shows how they get to cash flow positive in 2012 as previously promised.

7. HK – first set of slides:

   http://www.petrohawk.com/pdf_files/section1.pdf

8. From BedTime Market Strategist last night… 12 hrs late —

   Looking Left.

   The Senate passed its version of the Financial Regulatory reform bill last week. This process gained momentum just over a month ago after the SEC filed fraud charges against Goldman Sachs*. The Senate Subcommittee on Investigations’ sideshow provided additional momentum. The process culminated with Senators either leaning to the far left or battling for their political survival using the reform bill as the cornerstone of their 2010 campaign strategies. Although several measure gravitated back towards the middle, some measures have been so radical that it caused the Fed, the FDIC, and Treasury (and thus the White House) to lobby on behalf of the Financial Industry. The resultant situation is one in which Wall Street and Main Street find themselves looking to the moderate left, and even some of the far left, to save the financial architecture from the extreme left. (Just for the record, the extreme right environment of the past decade, while interesting, was hardly healthy).

   As extraordinary as it sounds, the Financial industry must now rely on legislators like House Financial Services Committee Chairman Barney Frank to make sure the politicized aspects of this bill do not push the nation’s financial system off a cliff. The prime example of the challenge is Senator Blanche Lincoln’s Derivatives Reform Bill. Lincoln has been under intense political pressure for the November election. She did not outright win her primary this past week and now must win a runoff next month just to remain the Democratic candidate in November. Her measures in the bill would prohibit banks from trading derivatives. By and large, both sides of the aisle recognize that Lincoln’s measure is too extreme, but in finding a rule that is damaging to banks, she has found a political lifeline, even if only temporary. Not only have Bernanke, Geithner and Bair opposed Lincoln’s measure, but even Paul Volcker, the inspiration for the eponymous rule, is on record opposing Lincoln. Notice that only appointed officials are in public asserting their opposition, the politicians are afraid of calling Lincoln out for fear of appearing bank friendly. The time will come when someone points out that Lincoln is just another politician putting her own political livelihood first and the country second, and her maneuvers will backfire.

   In an interesting twist, the key Republican cloture vote was none other than Massachusetts’ Scott Brown. Brown was concerned that the Volcker Rule language was too rigid for insurers and custody banks. Fellow Massachusetts official Barney Frank told Brown that the House version of the bill does not have the disconcerting language and he would fight to ensure the House language would be in the final bill. The House bill’s position on proprietary trading is that the Federal Reserve may only ban proprietary trading at an institution if it threatens the safety and soundness of the institution or the financial system. The irony of these developments is that AIG, the personification of went wrong in 2008, is an insurance company. Regardless, these developments set the stage for something less onerous than that feared by the Merkley-Levin version of the Volcker rule, which has been attached to the Brownback amendment to exempt auto-dealers from the Consumer Protection Board’s oversight. Neither amendment makes much sense, and both appear to be designed to be sacrificed together when the Brownback amendment is voted on this week as the pending amendment votes are completed.

   There are still several hands to be played as the Senate and House bills go through the reconciliation process. Chris Dodd and Barney Frank hold very strong hands. In Hank Paulson’s memoir, the person the Republican Treasury Secretary was most surprisingly complimentary of was Barney Frank. “Barney was scary-smart, ready with a quip, and usually a pleasure to work with. He was energetic. A skilled and pragmatic legislator whose main interest was in doing what he believed was best for the country.” If Hank’s words hold true and these gentleman manage to continue to heed the council of Secretary Geithner and Chairman Bernanke, the industry will likely get through this process without being pushed off the cliff by self-interested and/or financially uninformed politicians campaigning in May for November’s election.

9. BOP -how’s credit this morning.

   Nicky – can we get fresh levels

   HK through 2 of the opening sections. No questions asked after either. Apathy.

10. TED Spread is flashing yellow, out to almost 36 bps now.

    IG is strangely rallying this morning, about 2 1/2 bps tighter

    As is the HY index, up 3/8 of a point now. Weird. Doesn’t indicate a disaster of an open… So, either HY falls back, or stocks will go green.

11. typo… make that “amost 35 bps” on TED

12. HK commenting on lease capture right now. Makes a lot of sense that they can capture it all, at least what they want, by mid next year. I will play in the ZIM sometime this morning but will go in slow and small.

13. Credit indices still holding onto green… should turn stocks, i would think.

14. KOG sub-3 last week was a $20 on the sidewalk, imho. Kudos to JB for picking it up!

15. Who pours the concrete?

16. ZRADE – ZIM – HK

    HK – Added (20) HK June $21 Calls for $0.38 with the stock at $18.50 as the company walks through their plays on their first analyst day. Stock has been down with rest of the group but see post and comments section for more reasoning as the day progresses.

17. WB – biggest names are HAL, SLB, BJ Services (now BHI). I thought the article was a bit disingenuous as it is uses the word “plagued” and then talks about 34 instances out of 10’s of thousands of wells.

18. HAL pours the concrete… but BP orders the log and makes the next decision. Sounds like that step was missing, from what i can tell….

19. BEXP putting on a bit of a bounce Friday and again today above and beyond group performance. Really expecting a PR there this week or next at latest.

20. BOP – yeah, HAL says no sonic log was run on the concrete. After the negative pressure test came back bad, BP decided to push ahead replacing mud with seawater.

21. Goldman out defending OIH this morning, along with Morgan Stanley. Goldman pushing HAL/ESV, saying you can buy HAL at an average historical multiple on trough earnings.

22. Market backing off again. Going very slow for awhile. Taking positions in 3rd and 4ths of desired instead of fulls and halfs.

23. Strangely, credit indices still nicely green. Also, seeing “risk buying” on the CDS desk. Someone (stocks or credit) is on the wrong side of the trade this morning…

24. HK action – not concerned about the market based pullback off the highs this morning.

    HK – Added (10) more HK June $21 Calls for $0.32.

25. even HY is hanging in there, green, up 3/8ths of a point. More weirdness…

26. I’ve activated the backup site today as the site is moving slow for some people.

    http://zmanbackup.wordpress.com/

27. BOP – it’s possible yield is leading the way.

28. We get existing home sales at 10am… that could dictate the direction of stocks. Expecting 5.62mm sold for up 5.1% MoM.

29. No one buys high yield when they are terrified. No matter what the yield is.

30. re 29 – right, what’s the opposite of a canary.

    HK – going deep into the weeds on the Haynesville development. Interesting stuff.

31. Home resales at 5.77 up 7.6% MoM

32. Site is working fine here in Houston

33. … which was a bit above expectations. Wonder what happens to the numbers in May with the tax credits in place.

34. Thanks Bond, did it just to be safe, was having trouble getting in myself.

    Tom, Ram – it’s working for you too?

35. HeadTrader pointing this out from this morning —

    Before the open BofA/Merrill upgraded AmeriGas Partners (APU), Boardwalk Pipeline (BWP), Enbridge Energy (EEP), Enbridge Management (EEQ), Genesis Energy, L.P. (GEL), ONEOK Partners (OKS), TC Pipelines (TCLP) and Williams Partners (WPZ) to Buy from Neutral.

36. Morning all. SPX has a wide range of support. Lower end is 1069, upper end is 1077. I would say the lower end needs to hold if we are going to work our way up to 1120.

37. Z: OK here

38. HK – benefits of restricted decline

    Reduce first year decline from 85% to 50%
    EUR’s grow – less compaction of the sand grains.
    Smoother decline over the entire well life.
    More predictable growth for the company as a whole
    Deferral of compression costs.

39. Thanks BOP, Tom, Nicky.

    Nicky – we feel awfully oversold in here to me.

40. ZTRADE – ZIM – HK

    Added (20) more of the HK June $21 calls for $0.29 with the stock at $18.10. Probably the last ones for a little while unless they say something more interesting during the Eagle Ford discussion later this morning.

41. HK – talking about pressure drawdown on the Haynesville. Talking about basically hurting your permiability after day 1 if you draw it down too quickly.

    He used the big DVN well that CXPO was in and touts as the biggest producer in the Haynesville. That was > 30 MMcfepd IP and had a 37/64″ inch choke (basically unrestricted flow). That well “went to hell and a handbasket”.

    Their idea is to produce more smoothly and adjust chokes back over time to maintain perm.

42. HK saying CRK and STR are embracing restricted choke Hayensville development. Others yawned at first (people like higher cash flow now and higher rates often but the smarter move is the long term bigger well … especially with gas prices as low as they are).

43. HK talking about resources in the play

    Doesn’t sound like water is going to be a problem, on proppant they are in bed with Frac Tech and fine there, and good on rigs. Talking about the beating equipment is taking in the Haynesville. Floyd saying they will have less trouble with logistics than anyone else going forward.

44. HK saying Netherland Sewell has been presented with all of the restricted choke production data HK has in the Haynesville so far. Said that they asked NS to look at it and NS said it was compelling. Said they will clearly be reforcasting those wells at year end so that sounds like reserve additions.

45. Yes, thanks.

46. Market appears to be sleepy.

    HK taking their first break, Hawkville portion of the Eagle Ford up next.

    Floyd’s comment when asked about expanding acreage in the Haynesville, “We have enough shit”

47. Floyd doesn’t seem to be worried as to whether or not he has enough inventory to play with

48. Z: I forgot if you thought the deal that VNR announced today was accretive. Thanks

49. Tom – I had not seen it. Will look later. HK starting back up with EFS talk.

50. ZTRADE – ZIM – HK

    HK – Added (50) more HK June Calls for $0.23 with the stock at $17.83. Stock seems to be holding its breath (sliding) during the call for no real reason. Continuing to listen to the call, not hearing anything out of the norm, I would expect analysts to have favorable things to say tomorrow.

51. HK making a very good point on their midstream business in the Haynesville.

    As soon as they saw Haynesville was going to be a big play they established a midstream company and started spending money laying pipe.

    They spent $275 mm to create the system, and this is what they sold half of to Kinder for $875 mm the other day. Not bad.

52. HK into the Q&A now…

53. HK – on lease capture for the Eagle Ford, they only need the standard 7 to 8 rigs, expect to have it held by production by late 2011, early 2012. Not going to be a problem to hold it.

54. Analyst Watch: HK

    Johnson Rice reiterating Overweight, saying long term growth guidance is higher than they had expected and they are please that capex on leasehold is coming down, in favor of proving up existing holdings.

55. Z: Looks like your fast CFPS growers (WLL,BEXP) are where some cash is willing to nibble.

56. Tom – yeah, also surprised to see EXXI up today. The President seems hell bent on shutting down the Gulf for a longer than previously expected term.

    If we see him go beyond the initial May 28th, look for response from oil and natural gas prices. I’ll have some detail in the post tomorrow on Gulf production stats and how fast they come off when you don’t drill.

57. Market inching green.

58. bill – u know why the NNAWS dropped significantly?

59. Nasdaq seems to be the only market with the ability to really get off the ground today.

    HK call over, nothing earth shaking but all good stuff. No one cares right now but that story continues to go to the better. There is no funding gap in the capex right now and they are about 1 year behind getting the Eagle Ford gathering system to the same point that the Haynesville system was at when they monetized half of it. Bet they do the same to this gathering system next year for a nice chunk of change.

60. Notably all of the yield names I track are uniformly up today.

61. #59 – agreed on the HK call. Man would $6 gas help…

    One other note – SWN likely has a similar gathering asset in the FS that is getting no attention.

62. 1520 – true. Weird, sleepy, summery feel to the market today, everything is just drifting about.

63. Crude up 60 cents despite a 1% rally in the dollar. Also weird.

    Interior Secretary says we will push BP aside if they can’t get the job done.

    Coast Guard says only BP can do the job.

64. FED Watch – Says they won’t sell assets until rates start increasing, so not in the foreseeable future.

65. lord grant me enough patience to hold onto by HK for another year.

66. V – Summers was out this morning making comments about his lack of worry the U.S. would be heading into depression. I think there has been a concerted effort since mid last week to calm markets with this kind of talk.

67. #65 – me too.

68. I still don’t understand how we can call earnings growth that comes on the back of cutting workers and other spending cuts a “recovery”. To me there has been no growth or recovery, just spending rationalization.

    States and governments still need to rationalize and that’s going to cause more job losses or else they are going to face defaults (some will face defaults even if they do rationalize costs).

    The lack of depression is going to continue to be a tough sell in my books given the challenges ahead.

69. V- I agree for the fourth quarter but revenues outperformed low expectations in the 1Q. Now, I know you are going to say, “yeah, but look at the easy comps” and that is true, but you can’t attribute all of the earnings growth to cost cutting if revenues were up at all.

    Depression is actually an easy definition to beat, technically. We’re not near levels of unemployment or GDP contraction that we were during the Great Depression. I actually thought Summers was setting the bar pretty low by using that word instead of saying double dip recession.

70. On vacation last week. Forced to watch Mark Haynes on CNBC. Arggh! Worse than Larry King.
    FWIW Went into an Apple store. Very Impressive. Plenty of customers and plenty of store help.
    apbd

71. Looks like another fun day in energy land; yeesh.

72. SD getting beat up today, actually for the last 3 years.

73. Z – The unemployment argument is false, we are near the same levels of unemployment if you measure it the same way.

    They’ve changed the metrics and what they quote so that the unemployment that gets quoted is U-3 instead of U-6. If you look at U-6 quoted the same way we are in the same ballpack.

    The revenue growth has hardly been substantial.

74. CAM, HAL, BP, RIG all getting hit again. Not sure when they turn, top kill starting tomorrow will take 2 to 3 weeks.

75. I mean I know it’s not as bad as the 30s, but it’s not really improving at all.

76. V – Maybe they have changed the metrics but I don’t see the soup lines everywhere as you did in those old photos from the 30s. I’ll send my dad a note since he lived through it and ask if he feels the same way he did then.

77. Wrote 76 before I read 75.

    Markets doing a whole lot of nothing today. Don’t know the reason for SD falling other than someone just giving up on the name and several other someones joining in.

    CXPO is now below $3. Does anyone have a broker note there. Time for me to start modeling this one up as it has now fallen into incredibly cheap land if the CFPS estimates are to be believed.

    2010: $0.93
    2011: $1.33

78. I understand what you mean, but I think we need to change the definition of what qualifies as a depression to fit the modern era?

    You say you’ll ask your dad, I say ask the millions that are unemployed and looking for charity.

79. Unemployment numbers are improving. Slowly. I’d say that in the meantime the same bills that’s going to add a per barrel tax to domestic production will also extend unemployment benefits again this week.

80. Wondering why EXXI is up today, could be the HW upgrade from last week but also wondering if someone else upgraded and whether or not they are speaking at UBS this week.

    Does anyone have a UBS conference schedule?

81. http://www.shadowstats.com/alternate_data/unemployment-charts

    Where’s the improvement?

82. Improvement is a directional term. As in, the U.S. is directionally not shedding 700,000 jobs per month any more and is transitioning to job growth with the last report even having less of a government component to it. I don’t think the U.S. gets back to where it was in terms of employment for a long time but businesses are selling more products and trucks are apparently rolling to restock inventory (all I have on that is the pop in diesel demand, a look at the truck data page I watch which has been ticking up, and anecdotal comments from retailers and some tech).

83. JB would you look at HK? Looks ugly on a daily to me which makes little since as the fundamentals have been improving for them all year due to asset monetizations and they are highly hedged.

84. Re poor performance in HK. Mr.or Mrs. or Ms. market likes to see exciting news. Like large oil find. Or price of NG up sharply. Other than that HK is pretty dull. Even though it is a much better co. it is a lot more seasoned than it was two years ago.

    So I guess it will basically trade along with the price of nat. gas.

    Co. did try to differentiate that they had more things going on, like cost containment and bettering the balance sheet, but that really doesn’t add much excitement.

85. Eld – that’s probably part of it but the market really stopped paying attention to even big well announcements when natural gas prices fell. These guys have had some nice oil discoveries in the Black Hawk field and that will help them get their liquids %s up in a stair step function as listed in the post which should give them some additional breathing room on capex. Listening to the last several calls and today its pretty obvious they are restraining growth in favor of improving the balance sheet.

86. With SD trading well under $6.00 could you not think of this as a long dated call option that never expires?

87. Z: 85 Yet CHK has out performed HK over the last few years. Go figure.

88. Re 86. Yes. Great assets in a >$6 gas environment. If they snag ARD they will be in even better shape but right now the weight of the debt on the balance sheet is hurting them.

89. Tom – yeah, I know or I’d be adding to CHK. I think some of the pull back in HK today is market, and some is a lack of big new wells in the oil plays. Those are near term events but were not ready for today’s program. I think we’ll see some target price upgrades tomorrow but no one cares today.

90. Where do you go to get nat.gas futures strip?

91. You can see the individual contracts here:

    http://www.barchart.com/futures/commodities/NG

    or your can go here for the cash strip:

    http://www.barchart.com/futures/commodities/X3

92. Z – Obama is playing the Gulf thing as I expected so far. Lots of words. Now he is asking for some words in return from the industry. You point out that no one can say “it won’t happen again”. Well they can’t say that if they are telling the truth. But Mr O don’t care about that. As long as somebody says it, then he’s covered. See? Somebody just has to say it and it’s business as usual. But yeah, this process will drag out, fer sure.

93. How much oil comes the Gulf of Mexico? About 30% last year.

94. Re: #83 HK, HK is currently on a P&F sell signal below trendline support, but notice that it is currently trading right at the lower channel trendline support, this is a a reasonable area to manage and previous trade to the lower daily trendline has resulted in material bounces….

95. Thanks JB

96. Resistance now at 1181/2. Need to take out 1192 to get this going to the upside…

97. Thanks Nicky

    RIG getting hit again, dow 7%. Rest of the spill group down 3 to 4% today. Hard for them to go higher with all the images of oil on beaches and marshes. More firms out saying that RIG and HAL and SLB are indemnified but comments over the weekend from the President about holding RIG and HAL responsible weighing on the names. I’ll take a look at HAL again when BP gets Macondo closer to being capped.

98. Z – actually the airlines analogy is quite good. When a big crash happens, a lot of noise is made about making sure it can’t happen again (especially if some particular piece of equipment fails). No sane person actually believes it can’t happen again, but politicians want enough noise to be made so that they have someone to blame *when* it happens again.

    Mr O doesn’t want to be blamed for the next spike in gasoline prices either, so there is a clock ticking. Just ticking slowly.

99. D – I’ll have some graphs in the post tomorrow re the importance of the Gulf from a hydrocarbons production standpoint.

100. Boredthirty.

101. TGA is interesting. Lots of upside with new oil wells, fields. Potential issues are Egypt and price of oil. Down partly because Canadian dollar is down, and should rebound with the CAD. Low risk overall IMO.

102. Tom – I will take a look at the VNR deal for the Tuesday post.

103. We are either in ivb or v down. v down is likely to see us gap down at the open. Ideally needs to make new lows. iv b would see a reversal back to the upside.

104. Nicky what’s your downside target.

     Occam – will have a look at that as well, don’t know em.

105. Article: Confident that well can be capped. Anybode know this guy-at last, maybe we find someone who knows what they are doing in this mess.

     http://www.nytimes.com/2010/05/25/us/25well.html?hpw

106. Z – with the futures continuing to slide we may be looking at v down. Possible target area is 1053. If it starts to look really bearish I will give some more levels. If however, the 1053 area looks to hold it would likely set up some positive divergence. Another thing to note is that both VIX and price were down today – often signals a change in direction soon. Selling volume did decrease today.
     The ‘voodoo’ looks positive for a reversal day tomorrow. If we are down at the open it should not last beyond 10.30am.

107. #8 last paragraph. Makes you wonder what Barney’s got on ole Hank.

     Photos from a soiree at Barney’s house ? Worse ?

108. Looking at the stocks in my charts only AEZ, MHR and WRES remain on P&F buy signals, ECA, EOG and HK are trading at lower channel trendline support, ECA is still holding a nice weekly consolidation triangle…

109. thanks for the charts JB.

     voted

110. Futures getting whacked overnight.

     Thanks for the chart thoughts JB.

111. mimster and Zman, thank you…

112. I second the thank you

113. Doing a little late night reading, markets overseas getting clubbed.

     S&P futures down 26.
     Dow down 200.
     Oil off $2.
     May stinks.

114. Yes. May stinks.

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