Market Sentiment Watch: Ready, set, get slow. At least that's the usual pattern for this holiday fractured week of the year. But this time we do have a number of potentially market moving big picture items including:
- Ireland asking for EU aid (there was some question as to when they would as it's three big banks with a problem and not the structure of the country's financial landscape). Worry now turns to whether Spain and Portugal will be close behind in needing aid.
- North Korea can't feed its masses but apparently has reached critical mass on a new nuclear facility which should force the U.N's hand as these guys are not obviously set up to export nuclear material to the highest bidder
- The SEC is getting ready to unveil a massive sting of Wall Street bankers, traders, and analysts. And,
- BOP made a really nice call on timing and price of EXXI's acquisition of producing Shelf properties from XOM.
The Week Ahead:
- Monday 11/22: No economic data release scheduled
- Tuesday 11/23: 3Q GDP Revision (F = 2.4% vs first reading of 2.0%), Existing home sales (F = 4.47mm), FOMC minutes at 2 pm EST
- Wednesday 11/24: EIA Oil Inventory Report, Jobless claims (F = 430,000), Consumer spending (F = 0.4%), durable goods (F = 0.1%), consumer sentiment (F = 69.7), new home sales (F = 218,000), EIA Natural Gas Inventory Report (12 pm EST). Market open a full day but it will be slow going after the open.
- Thursday 11/25: Markets closed - Happy Thanksgiving.
- Friday 11/26: No economic data release scheduled. Markets close at 1 pm EST.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Stuff We Care About Today – EXXI property acquisition, APC, WLL
- Odds & Ends
Holdings Watch:
- ZCAT (Zman Catalyst portfolio):
- $5,000
- 99% Cash
- Yesterday’s Trades:
- None
- ZIM (Zman Inefficient Markets portfolio)
- $11,500
- 46% Cash
Commodity Watch
Crude oil fell 3% last week to close at $81.98 lat Friday. The 12 month strip is trading at $83.61. We had a successful test of $80 late last week and I would expect crude to hold at least $75 should further weakness befall the equity markets. I continue to think crude will be close to $90 at year end. This morning crude is trading up slightly.
- China Watch: Product inventories at China's top 2 Majors fell for the 8th straight months (gasoline, diesel, and kerosene). Diesel stocks were off 14.3% from September to October. Demand hit a new record in October.
Natural gas rose 6% last week to close at $4.16. Typical bottoming action and we remain range bound with short lived spikyness attributable to cold snaps. This morning gas is trading up 4 cents.
- Tropics Watch: Nada
Stuff We Care About Today
EXXI Nearly Doubles Up; Moves To 3rd Largest Oil Producer On The Shelf
First Things First Watch:
NICE JOB GOES TO LONG TIME SUBSCRIBER BIRDSOFPREYRCOOL
The Price:
- $1.01 B - They're using cash from the balance sheet and getting their revolver bumped in size in accordance with the new reserves to pay for the deal. Look for another secondary down the road but probably at a higher price than here ... $30 maybe.
The Purchase:
- 1P Reserves of 49.5 MMBOE
- (61% oil),
- $20.40 / BOE = pretty good price
- Reserves are engineered by Netherland Sewell so should be a fairly conservative take
- 2P Reserves of 66 MMBOE
- (61% oil),
- $15.30 BOE
- Current Production of 20,000 BOEpd
- (53% oil)
- $50,500 per flowing barrel per day ... a good price.
- Leases total 131K net acres
The Impact:
- Makes EXXI the third largest oil producer (out of all E&Ps and Majors) on the Shelf
- They'll be operator of 94% of all acquired
- They get slightly less oily but that's not a big deal and that's day one, before they start working the assets in the direction of their aggregate oiliness.
Nutshell: A nice price to pay to nearly double up the size of the firm. Buying from a Major ensures they will be getting overbuilt infrastructure and bypassed exploitation and exploration opportunities. Not accidentally, the properties overlap with EXXI's current operations nicely. At first blush, when compared to the Apache for Mariner acquisition earlier this year this deal appears slightly more pricey However, the Mariner was 53% natural gas, much less liquids rich than this transaction. Oil prices were also lower then and APA was moving into a whole new theater in the deepwater whereas EXXI knows these properties well already. Lastly, the deal is accretive to the way the market has been valuing EXXI on both reserves and production. If you flip your thinking around and say, "what would EXXI trade at based on its original multiples of reserves and production" you get a post deal share price of $29 and $31 respectively. Won't happen overnight to be sure but I expect that and more as time progresses. And that excludes any thoughts on their ultra-deep program. This is an oversimplification and gives you no benefit of higher production levels spread of cash costs which will undoubtedly be the subject of question on today's conference call along with near term exploitation and long term exploration opportunities on the new properties. I continue to own the shares in the ZLT.
Conference Call: Today, 9 am EST
Other Stuff
- APC Hits Pay Off Brazil
- Itauna well encountered > 275 feet of pay
- At 15,250' on way to 18,000'
- Stock failed to budge last week after another discovery off Africa but should move on this news.
- WLL had a leak at a Bakken well over the weekend. It happens, thankfully there were no injuries and no fire, and is a non-event but it makes the press and might get someone to dump some shares creating and opportunity. Rather doubt it but you never know.
- Look for the Mid Cap Orange Charts in the Tuesday post
- Look for more single digit midgets in the spotlight later this week.
Odds & Ends
Analyst Watch:
- BEXP - BMO upgrades to Market Perform
- ATW - Wells Fargo cuts to Market Perform
- MEE - Cut to Market Perform
link to exxi call at 9 am
http://ir.energyxxi.com/eventdetail.cfm?EventID=88875
Forbes take on EXXI
http://blogs.forbes.com/christopherhelman/2010/11/21/energy-xxi-doubles-in-size-with-1-billion-exxon-acquisition/?boxes=businesschanneltopstories
wondering out loud, does exxi do a secondary to finance half of purchae 20 m share at 25
alot of demand now for the stock..
does not make sense to me to lever the balance sheet for a billion in debt
z — thank you for your kind words in the morning blurb! However… don't like the way the last two bullet points follow each other… Yikes! Was only working on industry scuttlebutt… and a large dose of "what makes sense."
Anyway, very happy with what Schiller is doing. And doing and doing and doing! Will continue to be a Happy Holder until proven wrong. It was a long summer… but EXXI has a nose for value…. and our group here has a stomach for time arbitrage. Nicely done, all!
a/o 8:56 EST pre mkt EXXI 27.00 b (scottrade)
Call starting. Re 3, I think closer to $30 but yeah, would expect them to do one.
EXXI Notes 1:
Identified 200 projects, with 700 mmboe potential reserves
Considering corporate transactions going forward, will continue to expand
…
EXXI Notes 2:
"properties fit like a glove, can't stress enough the synergies"
100% reserves engineered by Netherland – good to know not part Netherland and part by the company or XOM
Assets were low reinvestment intensive
Balance sheet – will update today's post to get to exact numbers
EXXI Q&A
Blackbeard East – at 28,500', about to log to that point (picking up tools now), then will drill to TD (originally set for 29,500 but it will go lower)
Davy Jones 2 – drilling ahead, will set another casing point at 25,000' (they're below 24,000')
Planning to cut LOE fairly significantly on the XOM properties
Abandonment liability doesn't kick in much until around 2019
…
how long does it take to log blackbeard east?
re 10 – assuming they don't get stuck they could be back with news withing a week.
EXXI Q&A
Mentioning the infrastructure now, talking about big capacity, 180 miles of pipeline, bunkhouse onshore …. basically overbuilt and no need for adding further platforms, pipe capacity.
EXXI Q&A
Q: EQUITY IS NOT GOING TO BE PART OF THE INCREMENTAL FINANCING?
A: THAT'S CORRECT.
I'll be adding a ZIM Call position in EXXI near the open.
EXXI… No additional equity to be issued with this deal. Nice!
Accretive acqtn + flowing barrel assets supporting current stock price + significant upside from Ultra-Deep Program = my kind of equity investment.
Leverage on the right assets at the right time = highly accretive to equity. Love it.
EXXI Q&A
Schiller making an important point. Netherland Sewell is bound by the existing lease operating expense in calculating reserves. As they take the LOE number down, the reserves on this buy should go up.
EXXI calls opening with massive spreads, being patient but plan to try to split some.
#16 is in response to bunch of whoosy analysts worried about "too much debt"…. have to look at the entire balance sheet plus cash flow plus "where we are in the cycle." This is a nicely accretive deal.
ZTRADE – ZIM – EXXI
EXXI – Added (20) December $30 calls for $0.65, on the mid with the stock at about $26. See today's post for news on EXXI's acquisition of a package of Shelf assets.
nice seeking Alpha piece zman. Thanks BOP for bringing EXXI to my radar screen.
EXXI Q&A
There are a couple of large ultradeep targets on this acreage. Not quite as deep as what they have been targeting in BB and DJ.
EXXI Q&A
All acreage picked up in this deal is held by production, so no rush to test those 2 ultradeeps or other exploratory prospects.
Will have a little over $200 mm of liquidity post deal.
Thanks Mim. Thinking it will move higher post end of this call, market willing. If the market turns green I'd think they make this the star of the day.
WLL off a buck, part market/group action, part valve leak at a Bakken well. Still expecting news here, this week or next out of their Lewis and Clark program.
EXXI Q&A
G&A from the new barrels is $4 mm (annual), adding less about $0.55 / BOE for LOE. That's versus their roughly just over $1 / BOE. So a nice drop in cash costs per unit there.
zman – Did EXXI change itself from a small cap to a near term mid cap with this aquisition?
Did I hear Schiller say that the BBE log could be out in the next few days?
As if to confirm what I wrote in 11, Schiller's last answer was to confirm they could have a log by Thanksgiving if the tool works correctly.
Ram – yeah, it's on the cusp of that.
WLL back to green, that was short lived.
MMR should get a lift from the BBE comments, me thinks…
Z,
Can you 'splain' why EXXI's redcution in LOE for the XOM Gulf properties will enable N &S to increase reserves for the XOM GOM properties acquired?
crys — good question. If you have 5 apples for sale at $1, but your cost basis on 3 of the apples are 50c cost + 25c overhead and 2 apples are 75c cost + 25c overhead, then only 3 of your apples are booked as "reserves." But if can lower your overhead to 15c, then your higher cost apples are below $1.00, then you get to book all 5 apples as reserves.
does that make sense?
bot some MMR at 17.40 on BBE comment…
27,28,30
thats major news on mmr
Congrats BOP
I added dec 25 calls on exxi so i just put the jinx in
34 did the same
Re 31. Sure, in the simplest of terms:
The reserve engineers take into account not just the barrels in place but the economic barrels in place. You have hydrocarbons under the surface you want to extract. You have thoughts on revenues based on commodity prices and thoughts on costs based on the specific assets. There is economic tailing out effect in play. At some point taking another barrel out of the ground just isn't worth it until either the price you receive to do so rises or the cost of doing so falls. If LOE comes down, they can take more out of the same pool than they otherwise would.
This is also why when people ask me about Peak oil theory I'm quick to ask what price deck they are talking about as I believe in Peak at Price. Get a high enough oil price and many things are possible.
bill — let's hold hands and sing "kum-by-ya" today… and hope it works. It should. That BBE comment was pretty exciting. Could hear by Wed… 🙂
EXXI holding gains well post call, lunch time analyst calls there should be favorable, especially with the dangling catalyst at Blackbeard East which is a nice way of keeping people from thinking about downgrading based on the recent run.
GST moving higher.
capes have been up 3 days in a row and up again today
http://www.tradewinds.no/drycargo/article571201.ece
Bakkens Today Watch: (a nontechnical summary)
BEXP took out its all time high today.
NOG holding at it's as well.
OAS within a hair of it.
KOG thinking about going for it.
WLL – flat on a well leak, news any day now on L&C and $3 off the all time high
CLR – at $53 and looking technically strong, high there was $83.50 and this is only name in this small group I don't own.
Nice call, BOP
thank you, choices. Those XOM properties were just too tasty for Schiller to pass up. And he got 'em at a good price… good for XOM and great for EXXI.
bop
you mention you woul dbe happy with a price of 23 boe
was you number all reserves or just proved
they quoted a much lower number
my number was for proved only
but also didn't think about the fact that exxi has lower overhead on those barrels ('cuz didn't know what the % operated was). So THAT makes the $/proved even bettern what is calculated by just looking at XOM's P1 reserves. So, happy-happy with the actqn.
Reef…thx for GST….wotta SDM!!
UBS raises their EXXI tgt to $34 from $26 saying after raising $599 mln in equity and preferred proceeds 2 weeks ago, EXXI delivered on its strategy to add value through M&A. Specifically, EXXI achieved a game-changing acquisition by buying 20 MBOE/D and 46.5 MMBOE from Exxon in the Gulf of Mexico Shelf. Firm says the deal will increase production/reserves roughly 77%/65% pro-forma.
Z- Your site appears to be functioning with its intent, making us all some dough!
Thanks
re 48 – thanks, had not seen that.
re 49. hey thanks for playing, enjoy the show, I'll be here all week.
MMR — wonder if Mr. Market is a tad disappointed that EXXI didn't take more of the Ultra-Deep off MMR's hands. Personally, I'm happy with the current arrangement… but I'm not always in the majority.
re 51, I think the market is just acting as an anchor this morning. Given the prospect of BBE logs in the next week or two I'm looking at adding to a position added Friday.
or a similar position
ZTRADE – ZIM – MMR
MMR – Added (20) MMR December $20 calls for $0.62, on the mid with the stock at $17.20. Expecting news in the next couple of weeks on one of their ultra deep prospects in the Gulf of Mexico Shelf.
Analyst Watch
NOG – Canaccord reiterates Buy with $26 PT, cites accelerating acquisition and development program
JPMo CDS trading desk thinks mrkt goes up after europe closes. They say that too many people went short the morning on Euro-news.
Thanks BOP – futures were up strongly late, also on the initial sigh of relief that Ireland was taking a deal. Then people started talking about the P and the S in PIGS.
Yup… "bailouts" are tne New Normal, it seems. ugh.
Expecting chop here for a while…possible test of 1187 as a low for today.
http://www.charthub.com/images/2010/11/22/FT71_ES_Composite_2
And rotation up from there.
http://www.charthub.com/images/2010/11/22/FT71_ES_Intraday
Housekeeping Watch:
Please bookmark the backup site:
http://www.zmanbackup.wordpress.com
Our migration to self hosting should occur this week.
Next week you will probably start getting ZBLASTs and other communications from zman@zmansenergybrain.com if all goes according to plan.
Lastly, we'll be installing some new billing software on the site, shouldn't cause any hiccups with passwords but for those of you paying by check aside from Tom, APBD, and Wizard, please send us a note regarding your "pay by check status" so that we don't inadvertently turn you off.
I have been watching the battle at 4.55 on KOG all morning…decided I was underweight there so I added 20% at 4.55…WTF; I like the stock and the story
Thanks Zorg, we're in the land of low volume trading at the moment … looks like a pretty uneventful week but I would not be surprised to see us melt higher over the course of it. The powers that be really should consider taking the who day Friday off so I don't have to feel like I need to check in.
Passport Potash…PPI.V penny stock buy today and get a ten bagger by Easter
Thanks for the flyby Reef.
WPRT continues to get a bid in a down market
KOG too, looks like a breakout.
Is PPI.V only available in Canada?
re 31: Recoverable reserves at the end of life will be determined by breakeven cost. The lower the cost to operate ($/BBL), the lower the rate (and higher the reserves) can go before having to shut the wells in.
re PPI>V…try PPRTF
PPRTF is visible. Thanks.
BOP: Great work. You and Z are the best. The others here are not bad either. Lots of happy feet today.
I joined the MMR parade at 17.05. I'll hold hands as well.
Quite the swing in EXXI. Thinking of adding more common.
Testing 1187
More EXXI at 25.00. The positive aspect of the news seems to have worn off.
ZTRADE – ZIM – EXXI
EXXI – Added (20) more of the $30 December calls for $0.40 with the stock backing off to just under $25 with the market on its lows.
and then some 🙂
HeadTrader saying mrkt sell off corresponds to news coming out about FBI insider raid… so far, two SAC spinoffs announced.
i'm outta the office… but HT says it's on CNBC now
Thanks BOP, I alluded to it in the opener, don't see that having a big bad lasting impact on the markets.
Neither did HT… everyone knew about it y'day… but guess it's just the deets coming out. The 2 SAC funds are 4b and 3b in size. It's just spooking everyone, i guess.
Hey. If you're gonna use inside info to make your living in the market, that is cheating AND against the law. So, not shedding any tears for those guys. But it does shake up the mrkt.
Z: Did you see the gist of the BMO upgrade with BEXP?
Re 82, sorry no, all I saw was the headline, says valuation call.
CSFB says oil demand worldwide "sizzling". The Sept numbers for the top 25 countries shows 4.2% YOY growth. Higher than the August 3.6%
Guys, something I'm missing on ROSE today?
Jat – it started early, I looked around for broker comments, don't see a thing but it could be from someone I don't get.
There is some very sloppy trading going on now, MMR down 5%.
wonder if the two funds raided are holders of MMR…
One of the funds, Diamondback, holds MMR… but only 16,500 shares… that shouldn't kill MMR… but it might be the perception. who knows.
In the spirit of the Holiday Season:
http://www.rawstory.com/rs/2010/11/saturday-night-live-spoofs-tsa-patdowns/
re 89. Pretty high volume on MMR already. Could be traders thinking its one of the names being looked at. Sure would think that if SAC, who was known to be a smart firm, was doing this on this name that they would have enough for it to matter.
another firm announced… Loch Capital in Boston.
Hope the put those guys on the barbie. Grabbing lunch, back in 30 min.
#93 — agreed!
ROSE: I have been trying for weeks to determine what is happening with ROSE drilling in Alberta Basis-nothing specific but inferences (rumors) that their drilling results looks very promising-nothing to go on specifically, however, and certainly nothing to jump in in size, particularly after the huge run it has had.
Old article:
http://online.barrons.com/article/SB50001424052970203296004575295001334531396.html
93
Im going to reserve judgement until I see details on the charges but my first instinct it's to believe its an over reach by the gov't. Uncle Sam wouldn't do that would they? ask Elliot Spitzer.
Their zeal one could argue caused 2008 meltdown
They harassed Greenburg of AIG getting him to resign, new mgt installed, didnt understand underwriting risk, and the rest is history
http://files.shareholder.com/downloads/ROSE/1073846068x0x420726/9874CAFA-2CB4-476B-9DD8-03C940F95A0E/111810_KeyBanc_Capital_Markets_Presentation-Houston.pdf
latest presentation-slide 18 has Alberta Basin info.
Took me awhile to track it down but this is the post that contained the data dump on the Souther Alberta Basin by ROSE on their conference call:
http://zmansenergybrain.com/2010/03/01/monday-morning-welcome-to-march/
There is a lot of data in the post and in the comments that follow it.
EXXI 30 min chart updated to refect near term support and resistance….
Z: Where do you stand with EOG these days? I know you still own. The Bulls say they have great assets, mgmt, cash flow and solid balance sheet. Bears are pointing to lower gross margins, higher PE than normal, lower PEG ratio, Lumpiness and execution difficulties. Is there any other energy blue chip that looks better to you at this time?
BOP, ZMAN and others… great stuff on this MMR, EXXI stuff. been here about a month or so… this site is far underrated for the amount of expertise and information flow that comes across the blog. thanks guys.
EXXI intraday, resistance at $26, support at $25.25
IG — agreed! z has assembled a group that in no way resembles a bunch o' motley fools. There are some awesome possums on this site…. only wish they would chime in more. Their collective brain power is measured in mega-wattage and could easily light up the Manhattan Skyline on a cold winter night.
I just reviewed your chart book and voted JB…looks like WLL is poised to breakout again…I know Z says we could have news soon…I'm waiting for some volume and the breakout to pounce heavier there…thx man
IG – whoa …. who's underrating my site?! 😉
Tom – I own a starter position in EOG. Planning to give it some time. If it drops into the mid $70s I will add more. If it hangs here I will not but will add around tax day as that is when I expect natural gas to start to lift them and others. You know I don't care about PE since this is a CF business. On the any other name question I am warming to NBL.
BOP – thanks for 103.
I am doing a lot of backoffice junk today so will step out for another 30 minutes or so.
#98, thanks, Z-I've seen references to their test wells as being broker-operated, hence the ability to hold the info "until more fully evaluated" does that sound plausible?
zman – Have you seen funds become more willing buyers of E&P when they move from the small cap to the mid cap category?
Tin Foil Hat Watch – Action in gold still very constructive for those who care or those who added at 1340… all action still related to Euro and Euro issues but those were demonstrated to ultimately be positive for gold in the case of Greece. The same will be true for this bailout and the ones to come will be no different.
Took a different tack this morning than others, sold the EXXI Dec 25 puts for $1.40. Figure if they want me to own the stock at $23.60 I'm happy with that. If not, well, nice lunch money…..
Normal
0
On the FBI insider-trading probe, sources tell me that DOJ is out to take down a dozen hedge funds, in it's case to shake-up the industry. http://twitter.com/#!/CGasparino …………one hedgie wrote in response to the gasparino comment "fortunately my performance proves my innocence"
LOLOLOL… "fortunately my performance proves my innocence." Thanks for the laugh!
JB, or Zorg-I've been waiting at the gate forever on ROSE to come back-it does not look like it wants to come back-do you see any point whereby a cautious buy would be in order.
It has been very stingy on info on Alberta test wells.
Thanks, JB-will go an vote now.
re 112
I'll take a look
zman – What market cap would an E&P have to achieve to move into mid cap territory? How important was the reverse split for EXXI? Could KOG also use the reverse split to an advantage?
re 112
I don't see anything to lean against until it gets back to 32.80 or so, which doesn't appear to be anytime soon.
Re 107 – Larger size of TEV and reserves will put them on a few more radars than before.
Re 114. There is not a cut and dry line in the sand on what is a small cap vs mid vs large. I like to break them into $4 B and smaller because more than that in the mid category doesn't graph well given how many names I track. I do not believe KOG could or would use a reverse split. They have they have no reason to as those are usually used to keep the stock on an exchange in terms of price. Obviously there is no impact on market cap. And 9 out of 10 reverse splits end with the shares collapsing back towards the pre split price. It wouldn't necessarily happen here because the reason for that collapse back event is a function of the types of companies (and their balance sheets) that engage in that action. KOG just isn't one of those kind of names. I think doing a reverse who damage them in the sense of market liquidity and would be viewed as an odd move, some might say, a cheesy one.
JB – thanks for your hard work on the charts. Thanks to Zorg for the chart commentary as well.
WLL looking at $110
NOG at 22.68, not too shabby post secondary, lol.
OAS and KOG and BEXP all moving well as well.
zman – Have you seen what is the drag on MMR?
1199 HOD?
Both MMR and EXXI seems to be anchored to something.
beerthirty
Thanks.
Circling back to 106. I had not heard that. I had heard they might just not submit the data to the state and pay the small fine later. Happens quite a bit. Not sure it would be the case here or not but it is possible.
Eli, the FTK roadshow must be well received! I'm in awe.
NOG trading at $23 right at the close.
I heard FTK roadshow tomorrow at 7:30am at NYSE.
I think they have many mettings.
HES makes $1 B buy of Bakken acreage from price TRZ Energy LLC. Never a truly dull day … details tomorrow.