TGI Long Weekend

Posted on by zman

Market Sentiment Watch:  Market is looking forward to a long weekend, so am I and so are 13 lucky guys that had to abandon Mariner' s Platform on Vermilion block 380. The Coast Guard reports that an oil sheen seen after the fire has dissipated and that the platform is not leaking. The Feds have launched an investigation but I don't see this accident having the widespread negative impact on offshore drilling or sentiment towards drilling like Deep Water Horizon did (the platform was not in the process of drilling for one thing and the fire apparently started in the crew quarters for another). I tossed a couple of positions out of the ZIM yesterday just in case and will be looking to re-enter 1 or both today depending on market conditions.   In other news, Payrolls came in quite a bit better than expectations and the futures went wild. 

Ecodata Watch: 

  • Nonfarm payrolls came in at -54,000 vs -105,000 consensus and -131,000 last month.
    • June and July payroll losses were revised to show significantly smaller losses.
  • Private payrols came in at +67,000 vs +30,000 consensus.
  • Unemployment was 9.6% vs 9.6% forecast.
  • We get ISM Services at 10 am EST, forecast calls for 53.5%. If this beats as ISM manufacturing did earlier in the week it should serve to further goose. the market.

BP Spill Watch:

  • The Coast Guard says the bottom kill of Macondo is two weeks away.
  • BP said that since it capped the well on July 15th, its spend rate has stayed up at $90 mm per day, the same as when the well was openly flowing and that costs have now topped $8 billion. So at least two more weeks of this rate, and we tack on another $1.25 B and then costs should fall sharply as rigs, ROVs staff are pulled away from the permanently plugged well.
  • BP also noted that the $20 B Gulf Coast Claims Facility is paying out about $3.5 mm per day, in line with what BP was paying out when it was running claims.
  • BP has pulled back from recent bounce highs due to government related delays. Attention in the space shifted elsewhere once a string of delays occurred but my sense is that the speculators and potential acquirers (or speculators talking about acquirers) will re-emerge as the end finally comes.

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - WLT
  5. Odds & Ends

Holdings Watch ZCAT (Zman Catalyst portfolio)

  • $5,200
  • 100% Cash
  • Yesterday’s Trades: None

ZIM (Zman Inefficient Markets portfolio)

  • $6,900
  • 27% Cash
  • Yesterday’s Trades:

  • HAL – Sold (25) September $31 for for $0.36, up 12%. Selling due to news of another rig explosion in the Gulf, rig operated by ME.

  • MMR – Sold (25) September $14 calls for $0.80, up 70%. Same reason.

  • WLL – Added (10) September $95 Calls for $1.00 with the stock at $90.75. My sense is that the onshore names will see increasing money flows in coming days and this is my cheap name in the Bakken with a solid story and a liquid options market. I continue to own WLL in the ZLT.

  • EOG – Added (5) September $90 calls for $2.01 with the stock at $89.05. The recent route of EOG shares seems overdone. I continue to own higher strike calls here and the common in the ZLT.

Commodity Watch Crude oil rallied $1 .11 to close at $75.02 yesterday, trading mostly in line with the equity markets. This morning crude is trading up slightly.

Natural gas eased a penny to close at $3.75 yesterday after the EIA reported an line with expectations injection to storage (see below). This morning gas is trading up five cents.

  • Tropics Watch: A Tropical Low, the remnants of what was Tropical Storm Gaston have a small chance of reorganizing and moving into the Gulf of Mexico late next week. Two more potential storms are moving across the Atlantic now. Meanwhile Earl has weakened but is still going to ruin the vacation plans of a lot of East Coasters and will be depressing cooling load there as well.

Natural Gas Storage Review

ZComments:  Injections continue to run on the low side of the historic range due to warmer than normal. The run of hot weather is about to come to an end and I think gas traders will be watching things more closely in 2 to 3 weeks to see if injections jump up as the shoulder season gets underway. I still project an end of October peak of 3,750 Bcf or slightly less, barring any storm related supply disruptions from the Gulf. I think this peak level is supportive of gas north of $4 per MMBtu (meaning I don't think we will languish in the mid to high $3s for long) until get a better handle on winter weather and the state of the 4Q / 1Q industrial economy.

Stuff We Care About Today

Walter Cuts 2010 Coking Coal Forecast

  • Guidance for coking coal falls from:

    • 7.7 to 7.9 mm tons to 
    • 7.2 to 7.5 mm tons
  • Driven by lower than expected production attributable to "difficult mining conditions" at a new long wall position in of their high quality coking coal mines (the #4 mine).
  • This also comes with a slight bump to operating costs, a temporary bump, they are still one of the lowest cost operators around.
  • They see production rates improving from here but not quickly enough to offset the shortfall to date.
  • They also noted that production is moving more quickly than expected at another of their mines which may allow them to add tonnage to expected production rate in 2011.
  • Sounds like a buying opportunity to me for calls as the early indications have the stock off over 6%.
  • See yesterday's post for my most recent thoughts on the coal sector and WLT.

 

Other Stuff:

  • I will release performance data on the ZLT on Tuesday and plan to do so on a monthly basis thereafter.
  • I'll have a new tab at upper left later in the day to contain recent multiple tables like the one from yesterday on coal and the comp pages for gassy players and the small Bakkens from last week.

Odds & Ends

Analyst Watch:

  • WLT - FBR reiterates Outperform rating. FBR said the issue above caused them to cut their 2010 EPS estimate by 9% and to lower their price target by one whole dollar to $87.
  • WLT - Keybanc Reiterating Buy rating

135 thoughts on “TGI Long Weekend”

  2. Re 1 WLT? Have to wait and see where they open, maybe the $85s for a quick trade. I own the stock and could care less about a temporary long wall mining issue. If ACI has one I care because it's more of a common occurrence but with these guys I fall back on "the world's an imperfect place, screws fall out all the time"

    Reply

  5. Front and Center Watch:

    WLT – See post

    HAL – I rarely get shaken out of trade on a knee jerk reaction, looking for a re-entry there so I’ll be likely to buy back those calls from yesterday at a higher price.

    Reply

  7. WLT, I'm not an options specialist, but the theta decay seems high relative to the current delta? Is that reight?

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  11. Front and Center Watch 2

    If EOG should catch a break any day it should be today. Maybe its a bit early and I’m commenting because I added calls yesterday but the sideways action after the drop should give some confidence to the crowd and there are some out their like GS who could spine up on the name in a pinch. Recall they liked it post 2Q at $100 so $90 should mean they like it all the more. Jefco put out a long piece debunking comments over poor well performance in the EFS that some brokers had written about in their post quarter numbers as well.

    WLL – 5th times a charm? Quintuple top at the 92 to 93 level could be tested today IF this market has any legs to it.

    …

    Reply

  13. Odd that Crude futures are flat with S&P fut up 11.40 and the DJIA up 105. Maybe those NYMEX guys are all at the wet and windy beach.

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  17. Front and Center Watch 3

    SSN – Tuesday is D day, pay day of between $51 to $69 mm, on top of the $10 mm deposit already received. If for some reason the deal fails this is probably going to fall to $0.75. And then after the statements they’ve made about the likelihood of it happening the lawsuits will roll in en masse. I don’t see that happening. I’m holding.

    Low end of the range puts my valuation at $1.39, high puts it at $1.76. That assumes the remaining acreage in the Niobrara is valued at the deal per acre price.

    Further down the road, you can easily get to a much higher number as the Niobrara goes into development mode. Management gets to a $10 number which is what little managements often do. I’d say slow down there bucko, let’s get a well drilled and see what we have in this part of the play. There are other components to the SSN story as well and I have given no value to any of them but the Bakken in my back of the envelope NAV.

    Reply

  19. Z: CEO of WNR bought a few shares. I know you are not high on refiners. Does this type of activity put it a little higher on your radar? Stock is a long term call.

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  21. Tom – I think it is positive in general when managements buy shares. I don’t see the trade so it would really depend on whether or not it was enough money to matter to him, assuming its not just an options exercise. I prefer to see several members buying. I am not high on that particular company of the refining group but it can run if the group does.

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  22. Ram – I don’t think so, at least nothing recent. My thoughts all stem from the day of the 2Q and 1Q calls this year. Perspective change there. Gulf of Mexico already factored in. Onshore, they are getting more “touches” in the wells, to get away from the baseball analogies and go with a soccer one. More complex wells (horizontal with lots of stages) = more opportunities for them to get paid on each well so revenue in NAM vs correlation with rig count is getting more skewed. International seems to be improving and you have headlines coming out of Iraq which while nascent and too small to matter until late next year or 2011 or more probably 2012, is positive nonetheless.

    Reply

  25. Shippers: BALT again trying for the 11.50 level, EGLE back over $5 again, thanks much for your comments there yesterday on order of attack Bill.

    Reply

  27. ZTRADE – ZIM – HAL

    HAL – Added (50) HAL September $32 calls for 0.27 with the stock at $30.52 for a quick trade after being shaken out of the name lower yesterday. For a short summation, see today’s post and comment 22. Risk level here is probably on par with the $31s which were originally taken with more time but deeper in the hole.

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  30. JB – got market thoughts on levels for the S&P?

    To me the employment data was an interesting monkey in the wrench for the overly bearish of the bears. I’m not saying all is wine and roses but the upward revision of the last 2 months and the better number today, combined with 1 or 2 recent numbers should serve to put a bid under the market post holiday that has not been there for months. Still think the market itself will be range bound but at least the data is not over the cliff.

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  33. RE: #30, looks like we could get a bit more intraday downside here, cash S&P found resistance just a bit under the 100 day SMA, and the S&P is still not on a P&F buy signal, and oil is currently weak, but I agree, from a multi day swing perspective, technicals suggest a test of at least the 200 day at 1115 near term…

    Reply

  35. Z: As a follow up to some SDRL comments. On their CC J Fredriksen the CEO had made some complimentary comments about RIG and said they will continue to look at all possibilities. Wall St took that as RIG is a take over candidate. I would say NOT LIKELY. Their balance sheet is leveraged and they would need money from their gov’t to pull off anything that large.

    Reply

  36. Asks to put partisanship aside, lol, after he just slimed the other side

    Im going to look for something to sell

    Reply

  37. re 34, surely you jest, do I need to hit rewind on the dvr? ugh. I have to ask “when do you take office sir so we can hold you responsible?”

    Thanks JB, thanks Tom (putting that on my rig market watch)

    Reply

  39. Nicky by way of email:

    we are overbought and that jobs number really was not great. resistance at 1107, then 1115 if it decides it wants to continue to move up. My best guess is that the great stimulus they are expecting from Obama does not come to pass and we move down.

    Reply

  44. I’m not a huge Obama fan, but truth is, every president harvests from seeds planted by the previous administrations.

    Reply

  49. LINE knocking on $30, WHX trying to rebound.

    Oil having a lousy day post ISM. My sense is that the market is thin and they see no reason to bid it up in front of the weekend which may show lousy gasoline demand from AAA for holiday travel due to the “closed for business” nature of the East Coast.

    Reply

  53. OK so “truth” is relative. GWB inherited a balanced budget from Clinton(irony), and Obama picked up from deficits, and 2 wars. Not the best place to start from. From my perspective there is very little difference between the parties economically. They both hire Goldman Sacks to run the treasury. The differences are mostly their social agendas and both want to tell us what we can’t do, just in different areas.

    Reply

  54. Obama doesn’t get the fact that if you take the average of two ideas, the result can be worse than either of the two that you started with. And if they were already bad to begin with…

    Anyways, switching back to investments: silver is now about .2% away from a breakout

    Reply

  55. Did you know that you can get free site time or a rebate on your sub if you bring new people in? It’s true “Do you want to know more?” Email the oh-so-bored petra at zman@zmansenergybrain.com

    I’ll have performance for the ZLT out on Tuesday, tweaking the color scheme for my charts.

    WLT approaching my bid.

    Reply

  60. Well that took awhile…

    ZTRADE – ZIM – WLT

    WLT – Added (5) WLT September $80 Calls for $1.30 with the stock off $2.15 at $75.80. See site for details on today’s move there.

    Reply

  67. JB:EOG-thanks-voted-try to vote every day as well but at minimum of 3x weekly-your work is valuable resource to this site

    Reply

  69. Apologies for the texts not going out, Google has refused to load the ZTEXT group for the last 3 days, weirdly, no relation to the server so I must be tech cursed this week. I find the email to text function does not work a lot of the time anyway. We have a place on twitter for zblasts that is being tested now.

    Reply

  71. Z: I see that BEXP has 6.6% of float short. I think that is higher than the group. What do you think the bear story is for these folks?

    Reply

  75. Tom

    That’s a touch high to the other oily names. My thoughts on that.

    1) They set the bar high by going the “press release per well” route for the last 18 months. The performance of each new longer lateral, higher frac stage well in terms of IP had to hit a wall and it has and that deflated some bulls.
    2) East Montana (Roosevelt Cnty) uncertainty over how good that rock is.
    3) Delayed a Three Forks Test at Rough Rider. No reason to think it was because of worry over the site, there are plenty of TFS wells in and around their RR acreage now that auger for strong results
    4) Capex creep. These guys have a bad habit of dropping deals on the market. For the Bakken they seem to be playing it right but people don’t forget they didn’t always have the Bakken use to misfire on their targets from time to time.
    5) Guidance is high now so a stumble on frac crew availability could cause a high profile quarter miss. Ooooh aaaahhhh. I might add if it dropped stupidly on that.
    5) The $/BOE for reserves is elevated due to the growth.
    6) Lastly, if you are short, pucker up buttercup, its going to be an ugly year for you when they put their reserves report out in 2011. There are probably other things out there but if I were short those would be the foundation of my case.

    Reply

  78. onathan Chappell’s Dry Bulk Shipping Note: Favorable near-term demand drivers should offset ongoing fleet growth into yearend. Although the still-large dry bulk orderbook remains a long-term concern, near-term demand spikes have historically outweighed capacity growth, and we expect this scenario to continue over the next few months. We believe the highly publicized BDI decline through mid-July was the result of gamesmanship in the iron ore trade, with Chinese steel mills pulling out of the market in order to put pressure on spot prices, and the grain shipping shoulder season. Iron ore fixtures have already picked up meaningfully in the last few weeks and with the 4Q quarterly contract price likely to come in about 10% below 3Q we expect the re-stocking of iron ore inventories and expanding ton-mile demand from a ban on iron ore exports from several Indian ports to continue to lend support to Capesize rates. In addition, we believe the wheat export ban out of Russia will add ton-mile demand growth to the mid-sized fleet as wheat shipments to Asia will likely be replaced with U.S. Gulf cargoes.”

    Reply

  81. Eld – speculative little name, I know a number of smart types who like it down here. I am working up one of my short pieces on it. If they punt their Marcellus the thing could springboard.

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  82. Z: CSFB came out bullish today on FCX. Calling for $95 by the end of the year. Catalysts are: 1. trough in metal products component of Chinese PMI 2.accretive project pipeline announcements 3.near-term quarterly earnings momentum. I have not seen many such bullish calls this year.

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  85. Z

    a few weeks ago you ask for any names (shipping) in the LPG sector.

    I didnt really follow the specific sector but thought it was time to look.

    I think I found a good value.

    Stealthgas (gass)

    Book 14.24
    cash per share 3.16
    6 mos operating cash flow 21.5

    trading at 2.0 x cash flow

    21 shares o/s

    stock is at 4.70 was as high as 15 a few years ago

    They sold some older ships bringing in 37 m. 30 m was used to pay down debt and 6m was used to buy back 1.1 m shares.

    They have a 15 m buyback in progress.

    The stock is thinly traded and there is no short term catalyst to make the stock pop.

    This sector the rates are very stable unlike the tanker and drybulk market. They have a good portion on long term charters and some spot exposure.
    The ceo says in this market , “its better to sell ships and buyback stock” and he is in fact doing that.

    I have taken a position. selling egle..

    http://www.stealthgas.com/images/stories/files/Presentations/gas-presentation-q0210.pdf

    and transcript

    http://seekingalpha.com/article/221870-stealthgas-ceo-discusses-q2-2010-results-earnings-call-transcript

    Reply

  86. Thank you bill for following up on that, interesting. Is that an area that typically is a dividend payer? Looks like I have some weekend reading to do.

    ATPG moving higher.

    Reply

  89. They used to pay a dividend then cancelled it, causing the stock price to drop.

    rather than paying a dividend he is buying back stock.

    It’s the only shipping company i know of that is buying back shares.

    This question was asked on the last call

    ————————————

    Jeff Geygan – Milwaukee Private Wealth Management

    Given your share buyback program in place and the apparent lack of any recent purchasing, say within the last 60 days, is there the possibility that you’re preserving cash right now for something other than the new build program, which may be opportunistically looking for additional capacity?

    Harry Vafias

    You hit it right in the spot. You are 100% correct. We wait to finalize the financing arrangements for the five year buildings depending on what percentage we’re going to get from the banks, then we will either restart purchasing shares or we’re going to see there’s something better to do with the money. I think that if nothing changes in the marketplace, we will continue buying back stock.

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  90. Bill – do you find that in the bulk segment, the names trade off perception of MV of the fleet to stock market value as much as they do off future earnings/BDI?

    Reply

  92. I like mv, i think most ignore it, and these companies bot ships at different times using historical cost, so if they bot right before the crash like drys did, the assets are way overstated.

    Drys comes up on screens as trading at a discount to book but the asset values are overstated and probably trading above mv.

    i think they trade more on cash flow/ebitda ratio’s, bdi,commoditity prices and overall market but sooner or later they trade to mv

    remember bexp, they had a bunch of assets and traded below 2. The ceo in those days, kept showing slides of the implied value of their acreage. Market back then wasn’t interested

    Reply

  96. Niobrara…..Colorado State lease sale record $ 26 million for 22 parcels comprising 7,851 acres…Average price / Ac $3,127….MRO bought 3,840 ac for $ 14.5 mil, CLR and NBL also picked up acreage. Most active county was Weld also interest in southern DJ Basin by independents in Elbert paying up $ 625/ac……Further north in Wyoming CHK and EOG continue to actively pursue the Nio in the Powder River Basin. In the Sand Wash Basin of CO independents continue an active permitting program in Moffat County with Samson Resources ( no Relation to SSN) very active….There are also several exploration programs for the Nio in the Green River Basin which has been gassy so far.

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  97. West – thanks much.

    Do you have a link, or counties for that?
    Where was NBL buying, I assume on the north side, can we tell how much they paid/ac?

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  100. I thought robry august production numbers were off the wall, sept is even worse

    06……64.71…65.23…65.17…67.65……53.79…57.81…58.20…60.22…..7.80…6.61…5.77…6.38……3.11…0.81…1.20…1.05.
    07……64.60…66.03…63.62…70.10……53.31…57.75…55.64…61.93…..8.13…7.30…7.09…7.58……3.15…0.98…0.89…0.59.
    08……66.27…66.12…64.21…72.58……54.32…57.93…55.88…64.84…..8.98…7.39…7.65…7.24……2.96…0.80…0.68…0.50.
    09……63.96…60.82…60.65…73.94i…..53.91…52.57…52.83…66.19i….8.59…7.43…7.11…7.20i……1.46…0.82…0.71…0.55i

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  101. Gaston now considered a completed storm but remnants now given a 40% of reformation in the next 48 hours. There’s another cloud pile coming of W. Africa now that already has a 20% chance of dev into a named storm in the next two days. Oceans very warm, conducive to development now.

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  104. So the 60.22 in column 8 is his marketed production number? If that’s the case then I can tell you its whacky as you get to September, historically unprecedented.

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  107. EOG on the tape saying it has hired BMO to sell its Gulf Assets. This is a small bit of cash but they said they were going to get on the non-core asset sales so good to see them not lollygagging.

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  108. Greetings from another POSOAB who just can’t check out early for the weekend.

    An important housekeeping note as many here have an interest in WLL.

    WLL has an exchange offer out for their 6.25% cvt pfd’s that will cut off for exchange into common on the 15th. This is an offer to echange for up to 3.28 million shr’s of the convert that is.

    THIS CONVERT HAS A STERIOD BASED CONVERSION RATIO OF 2.3033 and IS TRADING WAY IN THE MONEY AT $225.

    Since WLL is adding an inducement of an additional $14.50 (which will go away right after the exchange)cash, one would have to assume that most of the issue will echange and WLL’s share count will increase by 6+ million shares and that a lot of the new common holders will not see that as their mandate and sell accordingly. I think. I know I will with an eye to repositioning tag ends later on if I’m lucky.

    Just FYI on the extra liquidity coming into the name.

    Feel’in the Luv on WLL. Thanks Z

    Reply

  110. Z, NBL picked up 640 ac in 36-12N-59W for $ 400/ac. From Rocky Mountain Oil Journal 9-3-2010 edition….www.rmoj.com….subscription site but I found that it will more than pay for itself.

    Reply

  112. West – they do seem to have guys in all the deerstands watching wells. Thanks much, will have to get out a map to find that parcel. $400 an acre eh? Hmmm.

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  114. I like your nog picked..added some of that too.

    All they have to do is write a check..no exploartion expense, no ga, no seismic

    Love the model and their lost cost acreage

    Reply

  115. Hey Eli – can you walk me through the math on that, you know we’re not all bond savvy like you? How’s the inducement work, they pay you in cash on that deal? Seems there is an arb there that would quickly resolve itself but beautiful day outside is calling me and it may be that I’m already on vacation and just don’t realize it.

    Reply

  116. Bill – they are the MCF of the onshore in that respect. When you look at LOE/BOE they are far and away the low cost guys vs BEXP, OAS, KOG, WLL (not really fair to throw WLL in there as they have the EOR projects which have steam and other costs) but still, I haven’t found a cheaper cash cost Bakken guy than these guys. I have been given some knocks over management but am willing to think it may have been a sour grapes comment by one of the other players in the Williston. So far they have not been one to disappoint on numbers but my experience with them has not been very long.

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  117. on Balt

    team of divers in Germany are about to jump into the murky waters of the Weser river to assess the hull of a bulker that ran aground outside the port of Bremerhaven last night.

    The Baltic Panther is managed by Genco Ship Management.

    While the cause of incident involving Baltic Trading’s 51,300-dwt Baltic Panther (ex- Sinova, built 2009) is still under investigation, the vice president of New York-listed Baltic does not believe the supramax sustained damage.

    “The ship’s steering gear lost power momentarily, but steering resumed after a short period of time, and she [the Baltic Panther] continued the voyage under her own power,” Robert “Gerry” Buchanan told TradeWinds during a brief phone interview Friday.

    “It was a low impact hit on the muddy bottom of the river, so we don’t expect the divers to find damage, but we will know more after the assessment,” added Buchanan.

    Baltic’s boss also said that technicians have been called to inspect the steering gear, but the investigation is not expected to “materially” impact the voyage.

    “The ship is at a berth unloading her cargo as we speak,” he said.

    The bulker was carrying a cargo of iron ore when the incident occured.

    the vessel had arrived outside Bremerhaven at around 5:00 pm Thursday evening.

    While the ship was able to refloat under its own power, it is believed that tugs were deployed to escort the supramax to the port as a precautionary measure.

    No pollution, injuries or ingress of water have been reported.

    Reply

  118. RE: #105, WLL looks fabulous right now, a little tough to buy right here and hold over three days unless you’re simply confident on the Mkt opening up Tue, generating the breakout on the ascending triangle, super aggressive, just close you eyes and buy, but thinking a pullback before the breakout to the 20 day SMA may be a bit easier to manage, although it could run without you, not the easisest spot, I think…if long, just hold on

    Reply

  119. EOG – they’ve been letting production in the Gulf of Mexico die on the vine for some time now, favoring onshore plays. I know they have a sizable lease position, mostly on the Shelf but they do have deepwater or (had it) in Atwater Valley, which was gassy and way the heck out even as dw goes. It’s a distraction and I’m glad to see them punt it. I don’t know what production is now but I’d bet it is between 100 and 150 MM/d vs total co of 2.218 Bcfepd in 2Q10.

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  120. JB – thanks very much. Depends on your perspective. My cost is $60 and I would add more of it before the other Bakkens but alas, I’m full up on Bakkens at the moment. On the options I hear you loud and clear. Added some yesterday, just starting to perk up now on those and will hold through weekend but I have been warned by you now. Thanks again. Re Tuesday. No idea. Best guess is up.

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  121. No data scheduled for Tuesday release.

    Wed we get Consumer Credit but not until late afternoon.

    Pretty light week for data in general with jobless claims on Thursday the only highlight.

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  125. #115 on the WLL exchange: Yup, you give them your share of WLLprA and they give you 2.3033 of common stock and slip you an added $14.50 cash in the brown paper bag.

    BTW, I strongly believe that the same will happen to the EEXXF pfd’s which are trading in the money (185ish) and are prepetual converts just like WLL’s.

    This is the beauty of convertibles. When management wants to clean up the balance sheet they sometimes need to offer you a little walking money.

    Reply

  128. Found this note/summary in my email. I’m not long the name but note some interest so here it is: From Rodman on REXX:

    “Marcellus JV gets a good price. REXX announced a $140 million Marcellus JV with Sumitomo. In exchange, Sumitomo acquires an interest in ~12.9k net acres in the Marcellus Shale. Simplistically, this equates to ~$10.9k/acre, although netting out what was paid for producing wells, midstream assets, etc., results in a still-impressive figure of ~$9k/acre ($10k/acre in Butler, ~$8.1k/acre for the other areas). This compares nicely to our NAV, which valued the company’s Marcellus Shale assets at ~$5.6k/acre. Net of the deal, REXX still has ~55k net acres in the Marcellus Shale. $58 million of the deal value comes in the form of drilling carries (80% of REXX’s share), while the remainder will be a cash payment. Additionally, REXX can receive an incremental $9 million payment for leasing 9k net acres in Butler County for the JV (which would be cross assigned, keeping REXX’s net acres at ~55k).

    Funding issues now less of a concern. Prior to this deal, we estimated REXX needed >$100 million of additional liquidity to fund its program through year-end 2011. With this JV announcement coupled with its borrowing base increase to $125 million (from $100 million), it now appears that REXX has sufficient liquidity to fund its remaining 2010 and 2011 drilling program (REXX reduced its 2010 capex budget to ~$130 million from ~$170 million as a result of the deal). While we still wouldn’t be surprised to see the company access the high yield market at some point next year, the risk of a near-term equity offering is significantly reduced.

    Mid-year reserves are impressive. REXX reported mid-year reserves of 177 Bcfe, including the impact of the JV deal (which resulted in the sale of ~8 Bcfe, or ~7% of year-end proved reserves). Even with the JV impact, the company’s mid-year reserves were up >40% from year-end. This is better performance than we were forecasting, as our prior year-end estimate was only 180-185 Bcfe.

    Trimming production forecast. Primarily as a result of the deal, REXX trimmed its 2010 production guidance to 20-23 MMcfe/d from 25-29 MMcfe/d. Also impacting the guidance are pipeline delays in the company’s WMB JV areas. As a result, we are trimming our 2010 production forecast to ~21 MMcfe/d from ~25 MMcfe/d. For 2011, our production forecast comes down to ~45 MMcfe/d from ~56 MMcfe/d. Our 2010 and 2011 CFPS estimates slide to $0.52 and $1.18 from $0.63 and $1.68, respectively.

    Raising target to $20; reiterate Market Outperform. Our NAV gets a $1 bump as the JV value was higher than the ~$5,600/acre our NAV was valuing REXX’s Marcellus assets at. While the market seems quite bearish on gas shale plays currently, deals like this highlight that there is still significant value in the assets. While this JV was one of the key catalysts we were watching for REXX, another is results from its initial Niobrara wells, the first of which is expected to be frac’d later this month. We’re still buyers of REXX at current levels as we think the stock remains materially undervalued.”

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  129. Thx E long REXX. I’m also switching from SD to TAT. MM III over TW. Maybe a couple of weeks till we get frac data from Thrace Basin, but that should work and any good news from 7145 will lite a fire, there seem to be a lot of cats that could be announced here soon.

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  135. Hey Bill,

    I got your email re Robry and his production numbers that called for a 3 Bcfgpd ramp from June to August and now I guess call for a 6 Bcfgpd jump.

    I think he’s off. I agree with the flush production from shut in wells adding as a possible source of additional volumes. But en masse it still doesn’t work the way he is talking about. I’m sure some or even many operators may have opened the choke a bit and brought on some shut in production but the volumes he is talking about is comparable to bringing on the entire state of Louisiana. That would assume there is that much empty pipe sitting around the country to carry it and I have to wonder, since his data is taken from flow rates on pipes that he’s not got a math issue in his model. If that kind of increase had happened, there is no way we would have had injections to storage (even with the heat) that skirted record lows during July and August. Especially not with coal and gas prices waffling about in parity part of that time and with industrial demand off the lows but not anywhere near the highs due to the economy. I’ll do some digging but I’m confident that we will not see a ramp of anywhere near this magnitude when EIA reports July and August numbers.

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