Wrap – Week Ended 11/11/18

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People Say The Nicest Things Watch:

Z, I am +10.4% on the additional KOG I bought yesterday morning. Thanks for your good analysis

Zman. These are the kind of mkaret days that your hard work is justifiably rewarded. Congrats on many excellent calls over last few weeks. Those gutsy TPLM purchases really look brilliant in the face of a down market, my account is very happy today. Hope everyone is having a good day

One of the Reasons I Love What I Do Watch:

I can't know everything and don't pretend to. I'm an E&P analyst, once upon a time banker, and once upon a time before that buyside portfolio manager. That leaves many things important to what I do outside by experience base. And then I built this site and was lucky enough to attract people from all walks of the energy business and financial markets and for that I am truly thankful.

Case in point ...

On Monday night I wrote this piece on the KOG equity and debt deals and their proposed acreage acquisitions:

Kodiak Oil Makes A Steal of a Deal

As the week went I on the reception from the market place was positive as evidenced by the jump in the shares I said to expect the deal to be upsized, maybe the debt side of the deal as well.

Friday morning KOG priced at a better than expected (at least by me on Monday night) price with more shares while the senior note deal was upsized as well, adding $100 mm to $650 mm.  The rating was lower than I would have expected and the rate at 8.125% seemed a touch high to me given recent deals.

One subscriber noted last night:

KOG debt – CAA1 is not a good rating at all fwiw, although a rate in the 8′s doesnt seem so terrible (1 benefit of ZIRP)

And I responded:

nope, down near the bottom of the barrel, low 8%s seemed high to me, probably a function of so much that’s potential and not in the proven category yet but again, its a completely manageable coupon for them to pay. PXP did a $1B at 6.75% the other day and a better comp, OAS, did $400 mm last month at 6.5%. So not exactly sure why the oh so high interest rate here. BOP, got thoughts?

And the next thing is what I'm talking about regarding talent on the site. BOP responded:

The rate is high… but it’s not a surprise. I’m sure that CSFB told Lynn they could get a 7-handle on the debt… but…

1) KOG is brand-new to the HY mrkt; there is always a first-timer discount
2) A CAA1 rating by Moody’s means that a lot of funds have to pass
3) Rating agency ratings are more influenced by Proved Reserves first, then interest coverage next, than any other single factor. In other words, size really does matter
4) The rating agencies also like to see diversity of risk. Perhaps they have yet to come to the conclusion (as I have) that the Core Bakken is no longer exploration risk and more execution risk. A good number of funds probably don’t get this either.
5) KOG missed the prime window by about a week or so. This was a BAD week to try to shove through point 1 – 4 above. Fund managers are kicking back and planning their rounds of Holiday Parties and what they will spend that bonus check on… not coming up to speed on a new name.
6) Our own Govt can’t handle our own Sovereign debt problem. This is somewhat distracting. And gaining more and more headlines.
7) This week is typically the LAST WEEK for a large issuer to get something done. And given points 1 and 2 above, KOG had a short time to influence a brand new investor base.
8 ) Even with all the above, KOG upped their high yield debt offering size from $550mm to $650mm. At +650bps to treasuries, I would not complain… not at all.

There is also points 8, 9, 10, and probably 11… but that covers the most important stuff. Frankly, given all the things stacked against KOG Meets the High Yield Market, it’s a good deal for them. They got the cash. They locked in a fixed rate. KOG just needs to execute and everything is fine.

Oh… and I read somewhere that fund flows into high yield dried up about a week ago. Given that the HY mrkt is extremely techinically-driven (meaning, who cares about the fundamentals of the underlying credit, do I have any cash to put to work today?), I think KOG did about as well as could be expected. Also why they did an 8 yr non-call 4, instead of the typical 10 yr non-call 5… if KOG is a standalone company in 4 yrs, this debt will be called. (But I think they get taken out before that… )

It was a good deal for KOG, given their size, newness, concentration of project area, rating, and timing of year.  Also, they upsized the deal.  Says it all right there.

All that in the span of 30 minutes late on a Friday night ... nice. Thanks BOP.

Comments on the wrap table will be in the Monday Post ...

16 Responses to “Wrap – Week Ended 11/11/18”

  1. 1
    choices Says:


    Ties in w/BOP’s cmt about fund flo into HY drying up.

  2. 2
    PackMan Says:

    Great points by BOP.

    To clarify, what I meant by 8 1/8% not seeming so bad, was that a deal with that rating, in a more normal interest rate environment, would normally be well into the double digits.

    Think ATPG 11 7/8% or something like that.

    Therefore KOG paying low 8’s for such low rated debt is not bad at all, even when compared to other recent deals in the 6’s that you pointed out (undoubtedly those were not rated CAA1).

  3. 3
    zman Says:

    re 1 – thanks choices.

    re 2 – Pack – hear ya on the clarification, good point.

    Mississippi State = ouch, I almost feel bad for them.

  4. 4
    Zorgnak Says:

    S&P Futures
    Longer Term
    Two Major Acceptance Areas this year are at 1301.25 and 1157.25.
    The Major Low Volume Node (LVN) at 1230.50 clearly defines the area dividing the two acceptance areas.
    The October rally was able to penetrate to within a few points of Major Acceptance at 1301.25 where it was rejected and has now traded back below the 1230.50 level.
    Market has established a short term range between the the dominant acceptance areas and closed at the bottom of that range on Friday. Acceptance of this range at 1235.25 and the Major Low Volume Area at 1230.50 converge here. Important long term pivot,imo.


    Short Term
    Friday attempted above and below the 1217 level without many takers outside the initial balance area, finishing with a very neutral day type. Neutral day types are often followed by another neutral day as buyer and seller test toward nearby levels in either direction until a catalyst comes into the market. Setting support and resistance at 1203 and 1219.50. Market appears to be oversold by some measures. I would expect the area between 1229.75 and 1236.50 to offer stiff resistance on any rally attempts.


  5. 5
    Zorgnak Says:

    Crude Long Term
    97.45 Friday Close
    97.22 Volume Point of Control
    85.36 – 100.40 Value Area (70% of all volume)


  6. 6
    zman Says:

    Thanks for the long term thoughts Zorg

    Super Committee not so Super


  7. 7
    zman Says:

    Failure should lead to firing


  8. 8
    zman Says:

    Should get a SSN update tonight.

    WVR update well overdue.

  9. 9
    Zorgnak Says:

    Here’s a few names that stand out to me.
    They all have intact long term volume trends and are relative strength leaders.
    Not really interested in buying anything at the moment. Just going through the process..

    OII Long and shorter term volume trends intact trading back to support a 44.50. Barely ruffled by the market volatility.


    FTI…not mentioned much but the chart caught my eye..Strong volume trends, pulling back to support


    Honorable mentions..FTK BAS SDRL CLB

  10. 10
    Justin Says:

    Z- EPL’s Friday a.m . PR regarding the close of their bolt-on deal also updated guidance. Will you eyeball for any surprises?

    Watching, hoping on SSN.

  11. 11
    Zorgnak Says:

    Euro Debt


  12. 12
    Zorgnak Says:

    Peter Brandt’s charts of the week covering various markets..


  13. 13
    zman Says:

    re 10 – thanks, partial quarter update to guidance, in line with size of acquisition previously announced, LOE goes up proportionately, G&A unaffected, pretty much a non-event a non-event.

  14. 14
    Zorgnak Says:

    S&P Futs Overnight session opened below Friday’s range and is testing below support at 1203. Significant resistance begins at 1219.
    Areas of potential support are marked on the chart. 1157 is the Major Acceptance area below.
    Crude is steady, trading at short term support and long term acceptance at around 97

    S&P Futs

    Crude Futs

  15. 15
    daily coupons Says:

    daily coupons…

    […]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 11/11/18[…]…

  16. 16
    Ferdinand Helzer Says:

    Glady ramsdale


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