Oil projects are at a standstill. Oil/Gas producers are now capping their wells, in order to cut costs, as demand dries up. And, despite your asshattish desire to have things the way they were yesterday, oil companies are in very dire straights.
The underlying commodity price has fallen off a cliff, down about 75% in 5 short months. Yet here you are, like a fucking imbecile, trying to pick a bottom in oil stocks.
Hello, asshole, many of them will go all the way to zero.
This cycle is especially brutal for oil companies for several reasons. Most important is the condition of the sectors balance sheet, which happens to be dreadful in many cases. Most companies levered up into the faux inflation run. They borrowed a shit load of money, thinking $100 oil was here to stay.
Guess again.
Much to the chagrin of our asshat bankers, oil companies will be defaulting on their loans, as soon as cash runs dry. Based upon recent price action in crude, that shit (see ya later fuckfaces) will begin to happen soon.
Aside from the obvious plays (short oil stocks), one might want to inquire about the dumb lenders in the oil/gas space. Just when you thought there were no more shoes, BAM, another one drops.
Realistically, oil/gas companies will have a very difficult time raising capital in the future, with the underlying commodities in the dumpster and widespread insolvency amongst our coolest banks.
The following companies have a negative net cash per share ratio, which basically means they have more debt than cash on their balance sheets aka “fucked.”
(stocks above $10 per share)
Screen #1
FST, DVN, CHK, LINE, SFY, EAC, PVA, CRZO, EPD, CWEI, NFX, CNQ, XTO, APC, HK, SNP, ATLS, EVEP, NBR, RIG, WLL, CXO, BBG, HP, EXH, BAS, GLF, CGV, SII, SPN, OIS, CLB, OII, EPE, PETD, TSO, MRO, VLO, SUN, PBR, ETE, EPE, E, REP and IOC.
Just in case you were wondering, the amount of debt taken on in this industry is in the 100’s of billions, fucking absurd. It is a ticking time bomb, ready to rip off the remaining leg of your local banker. CHK alone has more than $14 billion in long term debt. SNP, an example of pure Chinese fuckery, has close to $25 billion in long term and short term debt. In an effort to narrow down the list to a few names, the following stocks kept flashing warning signs in my numerous, and quite thorough, screens:
Screen #2
CHK, SNP, APC, CNQ, DVN, PBR, RIG, SII, NBR, ETE, VLO, EXH, WLL, E, REP, HK
And, finally, here are The PPT Hybrid Scores for the stocks in screen #2:
CHK: 2.57 Sell
SNP: 1.91 Strong Sell
APC: 2.61 Sell
CNQ:1.94 Strong Sell
DVN: 2.69 Sell
PBR: 2.7 Sell
RIG: 2.59 Sell
SII: 2.58 Sell
NBR: 2.03 Sell
ETE: 2.1 Sell
VLO: 2.53 Sell
EXH: 1.93 Strong Sell
WLL: 2.66 Sell
E: N/A
REP: 2.66 Sell
HK: 2.42 Sell
Now, before you go out and short all of the above names, remember that oil/gas stocks are the go to sector for asshole dip buyers, running around in florescent orange leotards. If you have a long term objective, without a doubt, many, if not most, of the above names will be significantly lower, due to sector deterioration.
NOTE: At the moment of this post, “The Fly” was short an egregious amount of RIG.
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Fly is God
What about DO? … Like RIG? DO is not on your above lists.
DO’s score:
2.57
Sell
However, they have a good balance sheet, unlike RIG.
I forgot …
In a 12-23-2008 Zack report I read this about DO: “The company’s $11.5 billion BACKLOG provides for a very high level of earnings and cash flow visibility.” [The CAPS is my emphasis]
something that may stem the oil slide, btw:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFgHlh.Dn4Lc&refer=home
More “good news”
Go buy some stocks you fucking idiots, EVERYTHING is fucking “priced in.”
http://www.bloomberg.com/apps/news?pid=20601109&sid=a5GbgGwA7BKM&refer=home
Yeah too much business risk in this space. But the commodity itself could get interesting soon. Imagine the supply destruction if a bunch of these go bk.
Don’t you just love the Liberal Bullshit Media?
Fly,
Many of these oil companies are hedged. Find out which ones are hedged and which ones are not. If oil does stay at current prices for another 12-18 months than I agree, many companies are fucked. On the other hand if we have a violent rally in crude and a move back to the $70-80 price level then these companies are great buys here. Will oil stay at $35 or will it rise back to $70+ ? That’s the question you need to ask.
Ed Clark is the man
http://www.ibankcoin.com/peanut_gallery/index.php/2008/05/14/td-banks-ed-clark-says-short-commodities/
Turning Point
Yesterday’s Globe and Mail had an interesting article that doesn’t seem to have been picked up by anyone yet titled “Commodity prices too pumped, TD Warns” and I’ll give you the highlights:
Anyone lending money in Western Canada should do so under the assumption that commodity prices are too high, he told a financial services conference in New York Tuesday, after being asked whether the prices are worrying him.
Mr. Clark, whose bank managed to avoid being whacked by the global liquidity crisis, said TD’s lending standards in the West assume “dramatically lower” prices than now exist.
The “yesterday” in the above quote was May 13, 2008.
Not only did TD avoid the crash of the sub prime, they avoided the oil crash as well.
I can short 5 of these anyone want to take a stab at 5. I am making my own ETF.
My long term objective is to keep the men in HAZMAT suits away from my front door.
Merry Christmas Fly.
Shit man no worries we’ve got millions of foreclosed homes the judges can use.
good calls by TD.
oil is dead and having seizures, which is why i’ve been constantly trading in and out of DUG. traded some ERY for a bit, but DUG is a little easier on the stomach.
Fly,
Any opinion on SWN and/or RRC? I bought puts on’em back in July thinking exploration would take a hit if oil price dropped.
The way DUG and DIG trade, you may as well just pick one and be assured you’ll lose money on the long side. You can day trade or short and hope you don’t get margin called on a sudden big move in the wrong direction.
As for oil itself, the price will continue to fall. The demand for oil has fallen off a cliff in the US, Asia and Europe. Our economy is in a serious recession. China is closing factories left and right. Supply is at record levels. Cushing, Ok is filled to the brim. And, oil speculators are hanging their hopes on a hail mary oil spike. These speculators must be flushed out before oil can recover. Also, OPEC has demonstrated that they are completely irrelevant.
In this environment, I estimate that oil will soon trade in the $20-$30 range.
Though, other factors can cause oil to spike. The dollar can fall in value for a number of reasons. Also, the middle east is still completely unstable, despite the fact that we have a new president that thinks they just need to talk. Given that people in the region routinely strap bombs to themselves and walk into hotels, it will take something big to shock the price of oil.
As The Fly points out, these companies have priced their products and borrowed large amounts of money based on $100-$150 oil. With oil at $35, the spike that these companies are looking for is between 300%-500%. A move of this magnitude would take years. Even if the SHTF in the middle east, a triple in oil would take more than 6 months.
The only hope for these companies is for oil to spike 300%-500% in the span of days or weeks. Not going to happen. These companies are zombies. They need to turn themselves into banks and get them some TARP!
Should we buy solar then?
Cap:
You are looking at it wrong. It’s not a matter of if oil will go back to $70. It’s all about where is oil now.
Your mindset is the same shit Guy Adami was saying about CDO’s with respect to banks, early 2008.
He said CDO’s were “cheap” at 40-50 cents on the dollar and that “once prices moved higher” banks would enjoy “mark ups.”
Well, we all know what happened.
When a stock or commodity is in freefall mode you cannot assume it will bounce and scream higher. In this case, you have to consider all of the input costs that went into producing crude, north of $100.
There will be ramifications. Oil is down 30% this month. There is no way that is reflected in most oil/gas stocks.
both rrc/swc have bad balance sheets.
So what do we do then? SCO, anyone?
I couldn’t resist.
Vietnam’s Dong Falls to Record Low as Government Devalues to Help Exports
http://www.bloomberg.com/apps/news?pid=20601087&sid=aWnaeQaSAMlg
Anyone think oil companies are next in line to ask to be “bailed out?” They could threaten that if they shut down shop, there would be a gasoline shortage in the U.S. Then again, if the jobless rate keeps going higher, who needs gasoline?
No, oil companies are worse than the devil when it comes to the dem congress. There’s as much chance they’ll get bailed than Bush getting a third term.
When you are thirsty it’s too late to dig a well.
CAP, you would think they were hedged, but in a hissy fit of f@ckery many oil producers went long. In the 80s they were hedging, this time everyone got caught on the same side of the trade. Fly is right about them turning off wells, I’ve seen it. There is much inventory right now but the industry is going to be up chit creek for awhile. I also suspect that the cash rich, i.e. XOM, is using cash to support share prices. If Iraq comes in a gusher big oil could benefit, but the domestic producers & Canada are screwhoohooed.
Great post – good thing they won’t put a short ban on commodity stocks eh?
Fly
If you think that why say wouldn’t you buy oil outright and sell the equity in some of these firms?
AMZN is going to spike at the open.
I’m thinking of SUN instead seems to be on a nice top-to-drop
gently , what’s the ppt hybrid , and frundamentals , fly ?
scum bucket Says:
AMZN is going to spike at the open.
wow nailed it ah .
call it spike , wonder if you remember what were spikes at opening on bull market .
no traders too on WS .
TM short?????
Market looks like paint drying on a wall today. Should have closed it.
Hope all had a good Christmas.
Off to play golf again today with the boy. Sunny and 82 degrees. Nice. Skins game with a few tour players (PGA,Hooters,Seniors,mini) and a bunch of amateurs. Haven’t won a skin in years so I may just drive my son’s cart.
scum
“If Iraq comes in a gusher”
ie increases production?
One should be BUYING stuff like TSO and VLO and NOT shorting them. SUN is a little too pricey to buy.
Saudi Arabia and Russia could run the price of oil up to $70 overnight if they wanted to.
They are keeping oil DOWN to cover the shorts they entered in to above $100. OIL STOCKS ARE A BUY and SHORTERS of them will be the fuckees.
Again, this BB is a great CONTRARY indicator.
ie increases production?
If usa big oil doesn’t strike it rich in iraq they are dead men walking.
Okay, AMZN +2% isn’t exactly a melt up, but what did you expect on this volume?
The Fly, How can you compair oil with CDO’s? DO people fill thier cars with CDO’s now? Did I miss something?
Today will forever be known as the FLY OIL BOTTOM!
If you are going to be shorting oil companies, make sure the ones you are shorting really were making big investments with the assumption of $100-150 oil. I’m skeptical that many of the larger, long-established companies were doing so.
Oil was above $100 for only an eyeblink in terms of planning capital projects, and demand destruction began occurring at end-user prices well below $100.
I would not short TSO here either. When oil was running from 70 to 147, TSO was dropping like a rock $60 down to $6. Something about the ‘crack spread’ . Now oil is dropping so TSO should be rising or something like that. Tehcnically TSO looks strong to having broken above resistance levels at $11 and above the 50ma. Long TSO short XOM might be a good trade.
Wood,
LMFAO
Chivas, I’m still sitting on a small position in DXO. Today I bought a similarly small position in USO. These are all discretionary purchases. So they’re probably wrong 😉 lol.
Fly,
I agree that some O&G companies have levered themselves to death, but the ones that haven’t should be decent buys in the next 6 – 12 months. As you point out the “Value Investors” are piling into O&G E&P companies as they think there is value. When a few start to fail then deals will emerge.
IM GOING AGAINST THE FLY AND BUYING OIL(1 year hold!)
Brokerage accounts from days gone by, are scattered with the remains of those who attempted to trade against thy Fly.
That said, bought UCO this am.
Fly,
I am curious re: your take on commodities being priced in USD considering the following:
The cycle will be print money by borrowing followed by inflation because a devalued dollar will be less expensive to repay. The risk is who will buy USD Treasuries when the yield is nil? Therefore interest rate must rise to entice buyers.
If there is too much USD volatility commodities will suffer the same movements? What other currency could commodities be valued in or what is the outcome?
Yeah, I know the question is long.
Oil to $17 this year. The people do not need gas. The 3 million obamarama ditch diggers will live in tent cities next to the bridges, roads and sewers they are constructing and will walk to their high paying jobs and to saks an the apple store to spend their money on coach handbags and new color iphones.
Dog,
Next few trading days?
DD – Oil to $17 this year? Within one week of trading?
El T, just hanging out SHORT for new lows in January. If I wasn’t playing a multi-month swing and was day trading I’d be SHORTING retail stocks here. How about you?
Oil to $17 probably in the second half ’09 after the obamarama economic revival dream does not come true. Oil may get a planned boost off of the Israeli invasion of Gaza that is being done to get prices up now.
DD,
If new lows don’t come in January, will we see them in February?
Also, what type of gun do you suggest to just, you know, have around the house for when the rioters and hungry people start showing up?
-DT
Dog,
For the most part the majority of my money is only in companies that I have significant influence over. That does mean smaller stuff, but I least I have some degree of control over the outcome. I used to work as a Trader for a Bank owned firm in equities, fixed income and options. I got tired of retarded management teams making imbecile decisions and me losing money. I only play around with the markets as I miss the investment business.
As for retail I think it is too late for most shorts as the news is no longer a secret…limited upside. I think the gains to be had in oil are along the same lines as retail…what’s the upside on a short? I usually look for stuf that will have a big shift. So, if you were short oil for the last few months good for you, but after a 75% fall what’s left?
Believe it or not I still have FXP and as still up on it. Usually sell my dog shit, but there should be some volatility to make some dough.
Arabs will be funding & supporting, Israels invasions of anything Arab, to get oil prices moving.
El T, I believe retail has a lot further to fall.
Ok i’m short XOM@ $77.15
DT, I’m still looking for new lows by 1/12/09.
DT,
Nice post…I don’t seem to have much edge today as I’m sick and have been playing board games with my little kids. Had to put the homicidal axe away, but still beat them (at games) most of the time. The world’s a cruel place so they better get used to it.
I think O&G is getting shut-in, but it is only a guess. As a loose comparison, I remember when natural gas at USD$2.50 per MCF made people blow their wad (7-8 years ago), now they complain they can’t make money at USD$7.50. North America has the highest decline rates in the world. Texas first followed by the Canada Sedimentary basin. I now expect the same sentiment is true with Oil as with Gas. Just my SWAG.
Gee, I’m so surprised that a gap up opening on the S&P and DOW with GM/GMAC & F leading could not break through the 50D SMA and is now failing. What is wrong with America? Doesn’t everyone know the the great obama is on the way to save the day? Top picks: Sears for obamarama ditch digging shovels & J. Crew for the mrs. obama nationwide fashion revolution.
Dog,
If a retailer is in the single digits, then in the not too distant future you get margin issues which are a bigger pain in the ass than it’s worth. Don’t know what the loan posts are like for shorting these days as I expect margin and concentration rules are further constraining supply of shares to short. Just one man’s opinion. Risk/reward not worth it, but you have to keep trading so there may not be many alternatives…
Went ahead and sold my small position in rig.Took a small loss.Watching NOV.for now.