Wednesday, April 30, 2008

Sex and Financial Blogging Part Two

I have recently discovered the value of including attractive women in my posts on this blog. This was an accidental discovery that I detailed in this post:

Sex and Financial Blogging

I have noticed that many bloggers use this as an integral part of their marketing effort, so it must be effective.

One of the most proficient bloggers at integrating attractive women into a blog is Trading Goddess Stock Blog. Of course the blog has much useful information about stocks as well.

Another blog with a similar theme is Maoxian, who peppers his posts with what he calls the "Gratuitous Cute Chick Pic." Maoxian has almost 3000 subscribers under Feedburner.

I will look for more and post them as I find them. Please comment if you know of any other besides these two.

Monday, April 28, 2008

Sex and Financial Blogging

In late February, I posted on a short clip that I saw on CNBC that showed a few of the CNBC anchors discussing the Bond Insurers. The clip had Becky Quick and Charlie Gasparino talking and clearly there is some tension between these two. There was nothing extraordinary about the blog post, it is only maybe 30 words long and I couldn't even figure out how to embed the clip in my blog so I had to post a link to the CNBC page. The link to the original post is below.

Becky Quick vs. Charlie Gasparino

What is extraordinary is the amount of traffic that this one post has generated in two months. It was posted on February 26, and has since generated 907 page views, including 105 yesterday. All of this traffic is organic as well and is from keyword searches on Google.

While this is probably not a lot of traffic for some bloggers, it is a lot for me. In fact, it is my second most visited page in the last two months, and represents about 8% of my traffic. So what is the purpose of this rant? I have decided to gratuitously include the names of attractive anchorwomen into my posts, including Becky Quick and Erin Burnett of CNBC, Julie Hyman at Bloomberg, and Jenna Lee at Fox News.

See I even managed to spike this post with six names. I wonder how much traffic this post will generate?

Have No Fear My Fellow Americans

I have to admit it is tough to be an American lately. Everyday I read about the weak dollar, soaring commodity prices, huge deficits, foreigners buying our country, collapsing Real Estate values and a slowing economy. Are we in the last Chapter of the sequel to Edward Gibbon's, "The History of The Decline and Fall of the Roman Empire ," entitled appropriately enough "The History of The Decline and Fall of the American Empire?" Will your children have to learn Chinese or Russian?

Fear not, my fellow Americans, people have written us off before and here for you amusement is a sample of some of that commentary, from the fear mongering media outlets that dominate our culture:


Time Magazine
For Sale: America
September 14, 1987
Link to Story

"Suddenly, the U.S. seems to have become a country for sale, a huge shopping mart in which foreigners are energetically filling up their carts. Result: foreign ownership in the U.S., including everything from real estate to securities, rose to a remarkable $1.33 trillion in 1986, up 25% from the previous year....By the end of this century, the U.S. may have the most modern manufacturing sector in the world, but it won't own it." Says Democratic Representative John Bryant of Texas: "America has been selling off its family jewels to pay for a night on the town, and we don't know enough about the proud new owners."

My Commentary: The Japanese were the main buyers of America back then, and they bought most of it at peak prices and sold it at a loss.


Time Magazine
The Seven Lean Years
Dec. 22, 1980
Story Link

"In all the sweep of postwar history, no event, no issue, no political or social process has more profoundly shaken the established world order, or brought about more rapid and tumultuous economic change, than the end of the era of cheap oil. This change has been called the energy crisis, but the term is too limiting. Rather than being merely an ongoing trauma over oil, the energy debacle has become a crisis of economics, of politics, of the very balance of power in world affairs. In short, it is an all-embracing, mesmerizing Everything Crisis....Since then, oil-consuming countries have paid the oil producers a staggering $370 billion for the precious black product that is essential to industrial survival. Saudi Arabian Oil Minister Sheik Ahmed Zaki Yamani warns that oil could easily rise to as much as $60 per bbl. in the foreseeable future."

My Commentary: Well not quite. In fact, the price of Oil collapsed by the mid 1980's.


Time Magazine
What to Do About the Dollar
Oct. 09, 1978
Story Link

"The fate of the dollar calls into question the way the whole world does business. The international monetary system is a precarious structure held together largely by paste, baling wire and confidence in the dollar, since it is the currency in which most international deals are made and which central banks keep in their vaults as reserves. During recent runs on the dollar, the first signs of financial panic could be seen."

My Commentary: Well, it looks like we survived this crisis too.

Oh wait...maybe its different this time.

Friday, April 25, 2008

The Ten Commandments of Growth Investing

And Behold...God cast out the Growth Investor from the Heavens and denied them eternal life and forced them to walk the earth for all eternity for they poisoned the minds of thine fellow investors.

I. Thou shalt use invented ridiculous growth rates to justify ridiculous valuations for Stocks in thine portfolio.

II. Thou shalt merge your Growth Mutual Fund into another so as to obscure your long term investment performance after an asset bubble bursts.

III. Thou shalt pretend to understand the business of high tech companies.

IV. Thou shalt purposely confuse fundamental analysis and momentum investing, and ascribe thy success to the former when it is really the latter.

V. Thou shalt memorize the following phrases "it's different this time, it's a new era, a new paradigm."

VI. Thou shalt create new valuation metrics to justify stock purchases such as enterprise value per eyeballs, etc.

VII. Thou shalt exalt in the following terms: earnings guidance, whisper numbers, EBITDA, non GAAP earnings, one time charges, goodwill, intangible assets and price to sales (because most of thou stocks have only sales and nothing else).

VIII. Thou shalt believe that all businesses thy invest in are secular growth when in fact all businesses are cyclical.

IX. Thou shalt intentionally use very low discount rates when calculating discounted cash flows in order to boost valuations, and thy shall use double digit terminal growth rates as well for the same reason.

X. Thou shalt focus on whatever time horizon suits you.

Ten Commandments of Value Investing

Wednesday, April 23, 2008

The Ten Commandments of Value Investing

And behold Moses returned from the mountain with the presence of God upon his face, and he delivered unto the grandchildren of Benjamin Graham the commandments unto which they shall live. And the Value Investors rejoiced for they were delivered to the land of long-term investment success.

I. Thou shalt not believe anything that the sell side tells you for they are the purest form of evil in the land.

II. Thou shalt seek out free cash flow companies and rejoice in them.

III. Thou shalt invest with a long term investment horizon, and worship at the altar of valuation.

IV. Thou shalt not care about earnings guidance for it a false God that forces short term thinking in management.

V. Thou shalt not move with the herd but shall stand to the side looking at the herd with derision and contempt etched upon thy face.

VI. Thou shalt not use EBITDA for it is not equal to free cash flow and was invented for the purpose of deceiving investors.

VII. Thou shalt not listen to anything Jim Cramer shall spake because he is unclean and evil and an abomination upon the Earth.

VIII. Thou shalt not listen to the talking heads on CNBC or Fox News or Bloomberg TV for thou art shills who pumpeth their own stocks for thine own benefit.

IX. Thou shalt do your own research and not worship on the altar of “smart money” which existeth only as a myth.

X. Thou shalt rejoice in the distress of thine fellow investors during volatile market days and use such panic to buy thine favorite stocks.

Saturday, April 19, 2008

Citigroup Sub Prime Exposure- An Update

Citigroup detailed its remaining "sub-prime related direct exposures in securities and banking, comprised of CDO super senior exposures and lending and structuring exposures" in its first quarter of 2008 earnings release.

CDO Super Senior Exposures

Gross ABS CDO Super Senior Exposures - $33.2 billion.
Hedged Exposures - $10.5 billion.
Net Exposure - $22.7 billion.

The net exposure is broken down as follows:

Asset backed commercial paper - $16.8 billion.
High Grade - $3.8 billion.
Mezzanine - $2.0 billion.
ABS CDO Squared - $0.1 billion.

Lending and Structuring Exposure

CDO warehousing/unsold tranches of ABS CDOs - $0.2 billion.
Sub-prime loans purchased for sale or securitization - $3.6 billion.
Financing transactions secured by sub-prime - $2.6 billion.

Total Lending and Structuring Exposures - $6.4 billion.

A couple of comments:

1) There is still risk in the $10.5 billion in hedges on the portfolio. Counterparty risk is the main problem here.

2) Is the phrase "High Grade" an oxymoron when the securities are valued at 41 cents on the dollar? I mean WTF? (page 19 of the first quarter of 2008 presentation.)

3) I guess the good news is that Citigroup can only write down $22.7 billion more until they are at zero.

Citigroup - Capital Watch

Here are the updated capital ratios for Citigroup for the quarter ending 3/31/2008, after writedowns and adjustments. The data is from the 40 page supplement released with earnings last week.

Tier 1 Capital Ratio - 7.7%

Total Capital Ratio - 11.2%

Leverage Ratio - 4.3%

All three of these capital ratios strengthened slightly from the fourth quarter of 2007 due to significant capital raising by Citigroup.

Book value is at $20.73.

Other tidbits from the quarter:

1) Loans 90+ days past due as a percent of end of period loans is 2.08%. The net credit loss ratio is much higher at 3.82%. I am not sure what the official definition is of this metric. Both these ratios are from the Global Consumer Division - retail distribution.

2) All credit loss ratios moved up sequentially or year over year - the net credit loss ratio in the card division was 5.38%, and in the consumer lending division (real estate) was 1.72%. Loans 90+ days past due was 2.73%.

3) A surprise to me was in the student loan area, where the net credit loss ratio was a scant 0.22%, and loans 90+ days past due was high at 3.25%, but down year over year significantly.

4) U.S. commercial real estate is still holding up, with a net credit loss ratio of 0.37% and loans 90+ days past due of 0.69%. These ratios are up sequentially, but still not in a danger zone yet.

5) The net credit loss ratio in Japan for the quarter for credit cards was at a stunning 14.33%. I am not sure what is going on there, I always thought the Japanese were a thrifty people!!

6) Citigroup is now the proud owner of $1.5 billion in real estate.

I will tackle the bank's remaining exposure to sub prime and related investments in another post.

Tuesday, April 15, 2008

Things Get Nasty at Capital Southwest Corporation

Capital Southwest Corporation (CSWC) is a business development company that has become a bit of a cult stock in some dark corners of the Value Investing world. The company is most well known for a large stake in Heely's (HLYS) that it desperately tried to unload at the peak last Summer. CSWC had to shelve its plans and watched the stock tumble from a peak of $38 down to $4.

Somewhere along the way, CSWC attracted an activist investor called ZS Crossover II L.P. ZS Crossover II L.P. filed a lawsuit yesterday in Texas trying to compel CSWC to turn over "certain books and records it has requested to inspect pursuant to Texas law" including shareholder lists. A previous letter from ZS Crossover II L.P. asked the management of CSWC to do the following:

1) "Liquidate, in an expedited but orderly manner, the approximately $55 million of non-control interests in public securities that it owns (i.e., the portfolio of various public securities other than CSWC's four major public holdings of WIRE, ALG, PHHM, and HLYS). These positions can easily be liquidated before the Company's fiscal year end of March 31, 2008. The cash proceeds from these sales should then promptly be distributed to shareholders in the form of a one-time special dividend."

2) "The Company should hire a nationally-recognized investment banking firm to evaluate strategic options with regard to CSWC's four major ownership stakes in public companies (WIRE, ALG, PHHM and HLYS)."

3) "We believe that the Company should hire an independent firm to opine on the valuation of some of its larger private company investments -- such as Rectorseal/Whitmore, Lifemark, and Media Recovery. This would demonstrate to shareholders that CSWC is attempting to better communicate to shareholders the intrinsic current value of its private companies, as well as to better understand this value itself."

ZS Crossover II L.P. owns 6.8% of the company according to a filing last month, but insiders are major holders of CSWC which may make a proxy battle a sisyphusian task to complete.

My previous posts on Capital Southwest Corporation.

Thursday, April 10, 2008

Howard Weil Conference Recap

I just returned from the Howard Weil conference in New Orleans and here are my impressions of the annual event.

Bulls Rampage – And why not? How can things get any better for the industry? Oil is at $110 and natural gas at $10.00. OPEC is disciplined, and the slowdown in the economy is apparently not having an effect on demand yet. We even got a bullish inventory report on oil on Wednesday morning.

Shale Plays Gone Wild – Maybe Joe Francis can send a camera crew next year to film top oil company executives ranting about Shale Plays. Although shale plays have been the place to be the last few years for an exploration and production company, this year they were even more hyped than usual. The Marcellus and the Haynesville Shale are hot new areas for Shale Gas, and any company who had any acreage here was touting it. One executive joked at the beginning of his presentation that he had to apologize since his company had no shale plays to exploit. When Range Resources finished its formal presentation, and headed to the break out session, I think about 100 investors rushed out of the room to attend, leaving only a handful of investors to hear Energy Partners, the next presenter.

My Fellow Investors - So there I was sitting in the main ballroom of the Sheraton New Orleans Hotel at the Howard Weil conference listening as the speaker drones on in the background boasting about how his operations are the lowest cost in the industry. I mean how many exploration and production companies can be the lowest cost? I look around the room. It is cavernous and filled with hundreds of bland homogeneous institutional investors. For those of you who have never sat in a room full of institutional investors, it is a real treat. Ninety percent of them are male, and this is particularly true at conferences in the Energy sector. Almost all are under 40, and most walk around with that peculiar mixture of arrogance and self-entitlement etched onto their face. This sense of entitlement is stoked by the sell side handlers, the institutional salesmen whose job it is to cater to the whims and ego of the largest accounts. All of these investors think they are geniuses because they have been able to pick stocks successfully in the largest Energy bull market since oil was discovered at Spindletop. This mistaken sense of success is also fed by access given to top management at these conferences.

As I move to a break out session some 26-year-old kid is pestering an executive of one of the company’s present about their capital allocation policy – raise your dividend, buy back your stock the kid urges. Now I’ve shaken hands with this executive at past meetings, his arms are like iron bars, and the calluses on his hands almost drew blood from my palm when he clasped my hand. He looks like he could snap this kid in two if he wanted, but he takes the high road, instead and parries him with some well-chosen words. What he really wanted to say was, "No you idiot, we are still a cyclical business and I have to save some powder for those bad times that will one day be here." Where does a 26-year-old kid get off telling an executive who has been in the business for 25 years how to run an oil service company? Does his spreadsheet even have a place for a single digit oil price? Or would it create some sort of circular error in excel? I prayed that this annoying little twit was not at my dinner that night, and my prayers were answered.

Food Fest – Two great dinners. One at Arnaud’s with Peabody Energy (BTU) and one at Galatoires with St. Mary’s Land and Exploration (SM)

Company Specific - The two companies I liked the most were CNX Gas (CXG) and St. Mary’s Land and Exploration (SM). St. Mary’s is undervalued by any measure, trading at 11 times consensus 2008 earnings per share of $ 3.58, 5 times EBITDA and 78% of net asset value of $49.32, according to Howard Weil. It has a new CEO who has started to transform the company from its old legacy asset base to one with significant growth prospects. St. Mary’s is in many hot areas including the Woodford Shale and the Cotton Valley.

CNX Gas (CXG) was spun out of Consolidated Energy (CNX) a couple of years ago (they still hold 80%) and has most of its assets are in the Appalachian Basin. After surviving an attempt by Consolidated Energy to bring them back into the company, CNX Gas can now move forward and develop its huge acreage position. Interestingly, the company’s entire reserve base of 1.3 TCF is only on 7% of its acreage, leaving 93% to be proved up. There is very little exploration risk on its acreage, as it is in known areas where natural gas is prevalent. They also are present in all the major shale plays such as Marcellus, Huron and New Albany. I don’t have a position on either of these names currently.

Wednesday, April 9, 2008

Range Resources (RRC) at Howard Weil

Range Resources

Tenth most active driller in U.S. – will drill 1000 wells this year – 2.7 million acres net under lease and 11,400 drilling locations in inventory.

Company has a record of strong production growth at low cost - $1.64 all in cost – 424% reserve replacement through the drillbit in 2007. Selling off low growth plays to focus on higher growth. Range needs 30% of cash flow to keep production flat – one of lowest in industry.

Hedging currently don’t look so good since gas prices spiked, but they hedge to protect capital program so they won’t have to access capital markets.

2.2 TCF in proved reserves at end of 2007 – and company believes another 3.1 TCF in inventory.

Emerging plays – Marcellus Shale, Huron Shale, Barnett, Woodford Shale.

Huron Shale – Nora/Haysi field – 300K acres – 1800 producing wells on current spacing - 3000 sites to drill left. These are Coal Bed Methane wells at depth of 2800 feet. Wells have multiple horizons available – Huron Shale is at 5,000-6,000 feet. The Big Sandy field is across the border in Kentucky, which is a naturally fractured shale play from the 1940’s. Bad news is that Huron Shale is not naturally fractured. Company drilled one Huron Shale well and it cost $1.2 million for 1 BCF. Huron Shale is thicker than Big Sandy and higher pressure. Ten Huron Shale wells to be drilled in 2008.

Marcellus Shale
– project has most long term impact on range – view this play the way Mitchell Energy viewed the Barnett Shale – Range knows the play very well. They have drilled some “really good” horizontals in shale. Plans in 2008 are to drill delineation wells (60 wells) to find out more about the play. This will tell them where to lease land since play is so big. They are also building infrastructure and they are in the middle of “land grab” in the area.

Marcellus Shale is 63 million acres – 20 times the size of the Barnett – play is very early however. Depth is 5,000-8,000 feet deep, most gas still in place. Play needs to be fractured.

XTO Energy (XTO) at Howard Weil

XTO Energy

Went public in 1993 – stock up 70 times since then. Strategy is to buy assets and exploit them.

20% growth projected in 2008 – company decline rate is only 15% versus 30% for industry.

30% of cash is needed to maintain production (reserve replacement) and the rest to grow production.

XTO does not have a lot of properties that are sensitive to gas prices – most are economic at $4-5 gas.

Sold stock in February 2008 to fund an acquisition – believes that the fourth quarter will have many opportunities to buy properties.

2008 Goals

15 TCF reserves – 15% annual growth - 1/3 by acquisition and 2/3 by drillbit. Feels that this will lead to a $75 price on stock.

Cycles have been longer and stronger – it is possible to have a cycle of 15 years and we are in year 6. Intrinsic value of oil to gas is 6 to 1, and we are at 10 to 1. That makes gas too cheap relative to oil – makes the case that if you believe in high oil price then gas should move up to bring ratio back to 6.

XTO is comfortable buying oil properties, but is still focused on gas mainly.

CNX Gas (CXG) at Howard Weil


Most assets in Appalachian Basin – total company wide is 1.3 TCF proved reserves. 3.8 million acres total company.

Very far ranging assets – they have Coal Bed Methane, Shale plays, tight gas, etc.

Although these are assets which are very old and were handed down – they were never worked over because they were owned by Consolidated, which focused on coal.

7% of acreage holds all proved assets.

CBM assets – Virginia, Mountaineer, Nittany, and Illinois Basin. The majority of reserves are in Virginia and will drill 300 wells there in 2008. Total inventory is 2578. Seven active rigs. CXG owns its own midstream assets in area and has two pipelines and can sell into two different hubs.

Mountaineer play is key play – 100 wells to be drilled in 2008 – 6 rigs running - this was a new start up area 2 ½ years ago.

Nittany – in Pennsylvania – production started in November 2007 – 100 wells in 2008.

Shale Potential – Want to go slow - $88 million plan to examine these areas – they have 4 areas – Marcellus, Chatanooga, Huron and New Albany.

Marcellus – acreage goes from Upstate New York down to Pennsylvania, Ohio and West Virginia.

CNX Gas and Valuation

In late January, the parent who owns 80% tried to buy the rest – they abandoned this plan and the stock has been flat since then. Company feels this is unjustified.

Proved reserves have grown 7.5% from 2003-2007 but remember company is not focused on growing proved reserves during that time when it spent most resources moving PUD’s to PDP’s.

15.5% production growth through 2010.

Finding costs of $1.25 per MCF calculated as drilling CAPEX of $175 million divided by net reserves ads and production of 136 BCF.

Company says they are “debt free” and can fund entire CAPEX program with cash flow.

Pioneer Natural Resources (PXD) at Howard Weil

Pioneer Natural Resources

About two years ago changed focus to onshore and things have worked out great since then.

14% production growth per share is projected.

Will generate significant free cash flow over next several years driven by production growth and roll off of legacy hedges.

Plays include downspacing in Sprayberry and Pierre shale.

Will be relatively unhedged in 2009-2012 period as legacy hedges roll off – if there is a superspike in gas prices, then might consider hedging again.

Pierre Shale – a shale play in Raton basin – drilled 2 wells 18 months ago and they have been working on it since - 15 wells in 2008, 30-40 next year. Zero percent entry cost in this play since they are already in area in different zones. Very economical wells similar to Raton Basin Coal bed methane play.

Raton Basin CBM – 160 wells in 2008.

Alaska – 2 projects underway – one will have first production this summer. Peak production in 2013 from the projects here.

Tunisia – have to get capacity installed to handle operations on their blocks – good leads and prospects here. Will be expanding the fairway.

Edwards Trend – 35 wells in 2008 – running six rigs here – 200 identified locations.

Barnett Shale – partnering with Devon – 20 wells planned in 2008.

Sprayberry – 5th largest oil field in the United States – company has 5300 wells and almost one million acres - drilled four successful wells on 20 acre downspacing in 2007 – will do 20-25 more in 2008 - 12-13% recovery on 40 acre spacing – 25-28% recovery ultimately is expected. One billion barrels is ultimate resource potential here. Will add 250 million barrels over the next few years. This will help with booking PUD’s and lower finding and development costs.

Tuesday, April 8, 2008

St. Mary's Land and Exploration (SM) at Howard Weil

St Mary’s Land and Exploration

Grow reserves 17% in 2007 and five year average is 17% also.

Production grew 16% in 2007 and 14% CAGR over last five years – 1 TCF of proved reserves and 2-8 TCF 3P reserves – 23% PUD’s and 74% gas.

Arkoma – Woodford shale – 16 wells planned in 2008 – 2 rigs running - 40,000 acres. Recent wells last 9 months have seen EUR double. Costs have fallen as well. 521 locations

Atoka – Granite Wash – a very economic play for them – key is performance and execution – 537 locations.

Cotton Valley – 3 different areas here – Terryville, Elm Grove and Carthage - 643 locations –

James Lime – have been here for over four years – 86 locations – 50,000 acres in James Lime. Have done initial evaluation and company may have 10,000 acres of Haynesville.

Wolfberry Tight oil – 310 locations – 70 wells to be drilled in Wolfberry – testing 40 acre spacing.

Olmos Shallow Gas – 382 locations – new basin interest bought last year – doing 3D seismic and evaluation.

2.1 million share repurchased in first quarter of 2008 - additional 3.1 million authorized.

Capital program of $661 million in 2008.

Company expects to be within cash flow after capex and share repurchase.

Forty percent debt to book capitalization currently.

Goodrich Petroleum (GDP) at Howard Weil

Goodrich Petroleum

GDP will have expanding margins on 2008 due in part to falling rig rates and completion services.

Goodrich is mainly in Cotton Valley Trend – 267 wells drilled through 2007 – 96,000 Mcfe per day is production rate currently. Core properties straddle Texas- Louisiana border.

Company is drill bit only – no acquisitions needed or planned.

Bethany Longstreet area in Louisiana – 18,700 net acres. Have been developing for several years.

Haynesville Shale – a highly gas saturated gas section - early in play – will be watching it over the next few months.

Longwood Area – 9300 net acres – monitoring development ongoing here.

Angelina River Play – Travis Peak and James Lime is target – 35 Travis and 4 James Lime wells on line currently – 40,100 net acres.

2008 drilling program:

115 wells – $ 275 million cost

GDP believes they have 1500 net locations to drill in inventory.

GDP is a big believer in hedging particularly given the margins in the areas that they drill.

359 Bcfe proved reserves – 125,000 net acres – 267 wells drilled in Cotton Valley Trend.


$250 million in debt and $283 million in total equity.

Employees own 42% of company.

NAV on proven basis is expanding rapidly – as probable reserves are converted to proved.

Petroquest (PQ) at Howard Weil

Petroquest Energy

Historically a drill bit company.

Petroquest made a decision in 2003 to embark on long reserve life assets strategy, and started making acquisitions.

Acreage cost in Woodford Shale is under a $1000 an acre and $1200 in the Fayetville shale.

Company has stable of developmental prospects that will last for years.

Three core areas: Woodford Shale (27,000 acres), Fayetteville Shale (18,000 acres), and East Texas.

Woodford Shale – last well drilled by company was one of the most economic to date.

Forty percent of reserves are Gulf Coast off shore, which is where the company started. By 2009 it will only be 30%.

Pelican Point prospect – first production in May 2008, initial production will be 20,000 mcfe per day. Eight more prospects nearby with six more to drill in 2008.


30% growth in reserves expected based on estimated cash flow -


Petroquest trades at 3.3 times 2007 cash flow and 3.1 times 2008 cash flow.

Drilling program for 2008 – 140-150 wells at a cost of $200-220 million.

Hedging program- 30-50% hedged is goal.

ATP Oil and Gas (ATPG) at Howard Weil

ATP Oil and Gas

ATP doesn’t do exploration – all properties have previous drilling on properties so less risk.

Production growth of 26% in 2007.

Follows hub concept in areas it drills.

ATP had three phases – Private until 2001, 2002-2005 when it made decision to go into offshore, and then last few years when production started to ramp up.

Ladybug project – first deepwater after going public. Since buying it, ATP has produced more than original estimated 2P reserves.

Gomez Hub – largest producing property in company – mostly developed but still some possibilities – drilling in 2 blocks.

Telemark Hub – bought from Norsk Hydro – first phase drilling to begin in fourth quarter of 2008 and production in 2009. another development coming in 2008-2010.

Canyon Express – Vicksburg discovery by competitor nearby.

Cheviot – just about to submit development plan 3 blocks – primarily oil Production in late 2010.

ATP has offered to pay the mortgages of all 66 employees for one year if they cut debt by $600 million by monetizing assets.

Occidental Petroleum (OXY) at Howard Weil

Occidental Petroleum

Stable cash business is on Texas and California – about 75% of reserves - low capex required.

Permian Basin – core of company business – continue to make small acquisitions – good time to make acquisitions now because banks have stopped lending to levered players – and MLP’s are getting their “well deserved demise.”

California – underexploited area but difficult to drill. More growth here than in Permian.

Middle East – North Africa – Dolphin Project in Qatar is completed.

Oman – steam flood project in Oman – 173 wells in 2006 and 2007.

Libya – 30 year agreement signed – good growth expected here.

Latin America – Colombia and Argentina. Colombia Cano Limon field is legacy field near the end of its life.


Capital allocation policy – projects must meet minimum returns and be competitive with stock buy backs.

Company takes very little reserve risk – most areas they know reserves are there. They are unhedged.

Spent $1.13 billion to buy back stock in 2007 – Company authorized another 20 million shares in 2008.

Company not happy with G and A expense per barrel so put in cost reduction program.

Long term production growth rate of 5-8% - maintain at least an A rating to compete against larger oil companies.

Murphy Oil (MUR) at Howard Weil

Murphy Oil

2007 was a “repositioning year” for Murphy Oil.

Acquired acreage in Suriname and Australia – leased blocks in GOM – natural gas play in British Columbia.

Production looks to about double from 2007 through 2010 to just over 200 K barrels a day.

Kikeh – 120,000 barrels per day by end of 2008.

Sarawak Natural Gas – supplies gas for LNG plant in Malaysia – production starts in 2009.

Tupper – natural gas play in Canada – tight gas play –2 TCF to Murphy after royalties.

2008 Exploration portfolio

U.S – 3 to 5 wells in Gulf of Mexico
Malaysia – 5 wells – Sabah field and Sarawak.
Australia – 1 well.
Congo – 2 or 3 wells.

New Areas

Suriname – bought block 37 – great source rock – looking for gas in this area will begin drilling in 2008.

Downstream Business

U.S retail – Walmart partnership – 20 state region – growing market share. Selling almost 300K gallons per month. Margin per site for non fuel is now $13,000 per site.


Meraux, LA – 125K barrels per day
Superior, WI – 35K barrels per day.
Milford Haven, UK – 108K barrels per day.

Conclusion – a quiescent 2007 to change to significant exploration in 2008.

Sandridge Energy (SD) at Howard Weil

Sandridge Energy


Company has 1,4 TCF of gas reserves, owns 44 drilling rigs, and major oil service business. Employees own 28%, and with board 37% ownership of company.

Company was an IPO in 2007 – focused on West Texas overthrust, where two continental plates collided millions of years ago leading to multiple traps, etc.

Likes the Pinon Field – 2600 locations and 260 wells to be drilled this year.

2008 is “year of exploration.”

8% growth in production in 2008 – but expect much higher in future.

Pinon field is south of Permian basin – where major CO 2 infrastructure is located. Sandridge has CO 2 reserves in its acreage at the Pinon Field.

Main focus of company capital spending is on E and P – don’t need acquisitions – debt to capital target is 33-50%, and the company hedges opportunistically.

Ensco International (ESV) at Howard Weil

Ensco International

Company has an excellent track record meeting Wall Street expectations – 33 consecutive quarters.

ESV had best safety record in 2007 in company history working toward zero incidents per year.

Highest operating margin in industry – 65% in 2007.

ROCE – 28% in 2007.

Average age of fleet is 5.5 years – company is adjusting rig age for upgrades.

ESV is making a substantial investment in deepwater – all new builds are contracted or have a letter of intent. Revenue base of company shifting from Gulf of Mexico to international. ESV now has 9% of ultra deepwater market.

International markets will continue to be strong – believes that demand will absorb new builds - North Sea market still strong – expected collapse in gas prices there did not materialize.

Iran offshore – 12 rig shortage there.

ESV has 31 rigs in the international market;

North Sea – stable - 10 rigs.
Middle East – all under priced relative to market – will roll off and be priced higher - 9 rigs.
Of the 12 left, 8 are under long term contracts.

Gulf of Mexico – supply keeps shrinking – 79 in 2008 versus 156 in 2001.

Conoco Phillips (COP) at Howard Weil


COP discussed business environment that they are operating in. OECD demand is flat – growth from Middle East, China and India. Resource nationalization and heightened competition to continue. They are still bullish on oil prices.

Demand to grow to 120 million barrels a day by 2030 – COP can’t see industry meeting that demand.

Cost of new supply is driving prices higher in oil markets.

Natural gas – COP has always contested the estimate of the amount of LNG that will be imported to U.S. – see Europe getting a lot of it - thus the see a robust market for Natural Gas in the U.S.

Strategic Objectives

To be competitive with peers on Cash and income per BOE.

Debt rate 20-25%

65-70% - E and P
20-25% - R and M
5% - everything else.

Production – 2% long term growth rate.
5 year reserve replacement - 100%

Downstream investments being made are not to add capacity but to improve ability to refine heavier crude.

Encana venture – they have no refineries so traded an interest in a refinery for some of their properties.

Lukoil – COP owns 20% of Lukoil – value is double what COP paid for them.

Financial Strategy – aggressive share repurchase, competitive distributions, enhanced per share metrics.

Return on Capital Employed – used purchase accounting to buy Burlington and since Natural gas prices were low after purchase, this affected ROCE. If you use cash based metrics, then they are better.

Bought $ 5 billion in shares in last two quarters of 2007 – this leaves $10 billion left in authorization – this strategy boosts per share metrics.

Baker Hughes (BHI) at Howard Weil

Baker Hughes

First quarter earnings call coming April 22 so will not comment during presentation or break out session on quarter. Baker Hughes spent much of its time discussing its investment in research to handle the increasingly complex drilling that is needed today. They company went into great detail on it new technology center and how it would help expand its capabilities. Maybe Baker Hughes felt it had to justify the cost to investors.

Long term growth strategy – People -added 1200 people in 2007, difficult to find people with technical skills – invested much more in training.

Long-term growth strategy – technology

Long-term growth strategy – Infrastructure $300 million to expand international infrastructure. Opened new campus in Dubai which is regional headquarters for Baker Hughes. Phase 2 to have manufacturing center focusing mainly on sand control product line.

Center for Technical Innovation (CTI) is second major facility being opened. Will expand capability to 40,000 psi and 700 degree Fahrenheit.

Completion applications becoming more sophisticated as drilling gets more technically complex. That is one of the purposes of the CTI.

Production optimization is key to any oil service company – increased recovery factor is needed to produce energy for world.

Saudi Arabia is a key market the last few years – Saudis using Auto-Trak in offshore field, and has a joint development project on MRI to help drilling.

Apache Corp (APA) at Howard Weil

Apache Corp

Apache is first up on Tuesday morning and it must have been a rough night at the Bourbon House last night as the room is shockingly empty.

Management is focusing on its three growth areas – Egypt, Australia and Canada.

Egypt – Increased gas threefold since 2001 – 50% up on oil production. Very active here – 282 wells planned – 40 exploration.

Australia – 47 wells to be drilled, also 4 development projects will add 80K BOE/D by year end 2011.- 14% of total production. Revenue to go up much more than gas production in Australia.

Canada – Ootla Shale Play in British Columbia – 44,000 gross acres in play. Recovery is 9-16 TCF of gas at 20% recovery. Two challenges – only winter drilling – lack of infrastructure to support major drilling.

Unbooked resource potential – 120 k barrels a day of production coming on line through 2011.

Tremendous exploration program going on this year at Apache.

Friday, April 4, 2008

Howard Weil Conference

On Monday, I am heading off to the annual Howard Weil Energy Conference in New Orleans. Howard Weil is a boutique energy brokerage firm. Its annual Energy Conference is legendary in the Oil patch and draws the top Executives from every Energy firm out there. There are also hundreds of institutional investors from all over the world. I will try to do some blogging from the conference on some of the bigger names.

Games Banks Play - Number Five

Over the next couple of years, many banks will fail and be taken over by the government or larger institutions. This will be an agonizing process that some banks will try to avoid at any cost. I will explain in a multi part series what to watch out for:

There are strict requirements regarding the sale of OREO by Banks in terms of the cash down payment by the buyer. FASB 66 states that:

"The buyer's initial investment shall include only:

(a) cash paid as a down payment.

(b) the buyer's notes supported by irrevocable letters of credit from an independent established lending institution.

(c) payments by the buyer to third parties to reduce existing indebtedness on the property.

(d) other amounts paid by the buyer that are part of the sales value."

Banks cannot lend money to the buyer to finance the purchase of OREO - or as the Comptroller of the Currency has put it:

"The cash down payment requirement of FAS 66 can be satisfied only with the borrower’s personal funds, funds borrowed from an unrelated source, or an irrevocable letter of credit from a third party. This requirement for a cash down payment generally is not met when a bank provides the borrower with an additional loan for working capital or when the borrower’s down payment is obtained by draws on an unrelated line of credit with the bank."

Part One

Part Two

Part Three

Part Four

Thursday, April 3, 2008

What is your Blog Worth?

A new Widget that I saw on Adventures in Moneymaking uses some formula based on traffic, backlinks, etc. to come up with a value for your blog. Mine is worth $22,017.06 as you can see to the right.

Click on it and then put your URL in to see how much your blog is worth.

I put in some well known blogs/ web sites to see what they are worth:

Seeking Alpha - $1.6 million

Blogging Stocks - $1.5 million

The Big Picture - $ 640,000

Calculated Risk - $540,000

Infectious Greed - $190,000

Interesting results. I will look into the methodology some other time.

Tuesday, April 1, 2008

Games Banks Play - Number Four

Over the next couple of years, many banks will fail and be taken over by the government or larger institutions. This will be an agonizing process that some banks will try to avoid at any cost. I will explain in a multi part series what to watch out for:

Restructured Loans - banks will work with borrowers to try to restructure loans to change the term or the interest rate. This restructuring may trigger an impairment that must be recognized under accounting rules. Also, just because a loan has been restructured doesn't mean that the loan moves from non accrual to accrual status. The borrower must demonstrate an "ability to comply with the new terms." Up to six months may be required before the loan is moved back to accrual status.

Part One

Part Two

Part Three