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Denbury Resources Inc. Message Board

  • publicus2222 publicus2222 Jun 16, 2008 12:57 AM Flag

    BDI

    The BDI took a pretty fair sized drop the other day. The shipping stocks, at least the dry bulkers, went down also.

    I doubt this drop was caused by Peter taking a vacation, but as he has indicated this index is more important than my favorite, the TED spread, I wanted to report it

    I have bought an opening position in DSX at 29. Some things to like: Ships are new, less than three years old on average, and pretty fully booked at nice rates for 2008, with room to raise rates in 2009. They have good cash flow at these rates, and paid out eighty five cents last quarter. Hard to annualize these companies as the dividend depends on earnings going forward, but could be a 12% or so return. Chart looks OK to me for an entry point, but I have a poor track record at picking entry points. Stock has rallied past couple of days, but might still be attractive.

    Peter had some shipping stocks he liked, and I suspect he still likes them unless the recent movement in the BDI has changed things.
    Interested in your comments, Peter, on the recent action in the BDI, and how it changes your overall assment of things.

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    • I do not believe that US driving will have any effect on oil prices. I think Chinese demand is the driver. For at least 6 months, the oil market has reacted only for a few hours after the release of US inventories, then ignored them, as it should. If we get a serious China scare, and it looks like China will stop stocking oil, oil will go down bigtime. If China stays strong, oil will stay strong regardless of US inventories and consumption.

      I just have a feeling that the rumor mill about the API number is manipulation by the shorts. Even if the API numbers and then also the EIA numbers are bad/high, which is by no means certrain, I have a feeling that way too many people got short oil this afternoon. There could be a short squeeze in the offing.

      I got the $93 figure by measuring the cup and handle in oil, and now I find that you cannot measure cups and handles unless they take place in an uptrend. So I think it goes up but I do not know how much, and the currenet double top, if it stays a double top, goes to the low 60s, so it could go there first. I sure hope so, as I will be buying.

      Goldman Sachs says oil goes to $85 by year end, and I have a lot of faith in their number as it is GS and their clients that will do the buying that will make oil go there.
      Ruellia

    • Hugh,

      I've come back from a bunch of client meetings and I see that oil, which was up $.50 when I left, is now down $2.60. I assume that that is not because of my post on the effects of international natural gas production growth on the oil markets. I hope that it isn't because the API is sharing their numbers with various folks before their 4 PM announcment.

      In effect, there is a limited amount of secondary production that occurs from natural gas wells and it probably principally consists of various re-entries including especially refracs of originally inneficiently fraced wells. Denbury, early on in their experience with BS wells used to talk about re-entries over time. With more modern techniques, there might not be as much left.

      But one of the things that needs to be remembered about gas wells is that they tend to produce for longer periods of time, once they have declined significantly, than folks tend to think that they will. Todd is still producing at very low levels, for example, from wells that are reasonably ancient. They don't produce much but, they're producing long after the original driller thought that they would be capped. So long as the wellbore is sound, there really isn't much incremental expense to keep them going at low levels as there is with secondary oil recovery.

      In the scheme of things, these production tails are of little to no consequence. If we're going to keep production going at 60 Bcf per day in the US we need to keep some certain number of rigs drilling new ones. Hopefully, we're going to get an idea about what that number of rigs drilling is during this downturn.

      Regards,

      Peter

      Regards,

      Peter

    • Peter, The North American NG reserves are small compared to the global reserves (Even including the 27 Tcf increase last year.)

      N.A. 283 Tcf....Global 6,254 Tcf.

      Globally, known reserves will last 63 years at present production plus oil wells tend to produce more NG as the well pressure drops. Therefore, if the known reserves are a known known and the production is not restricted, there is no shortage on the horizon. As far as I know, for NG wells there are no secondary and tertiary production methods.

      Regards, Hugh

    • Hugh,

      Nobody has the correct world data as you suggest. It exists a year or so out of date and is also contaminated by various guesses.

      One thing that I would suggest to you, however, is that the US, due to its geographic position and to its relatively unique ability to absorb the worst (sourest, heaviest) oil, represents the marginal barrel of oil to be stored.

      I'd bet that if we put our minds to it, we could figure out from various bits and snippets of data what the global situation was all about--but only approximately. One of the random facts that I've looked at recently is interesting in the world peak oil and consumption debate and it isn't about oil but is, rather, about natural gas.

      http://www.eia.doe.gov/oiaf/ieo/pdf/table5.pdf

      So, estimates of world natural gas production (based on recent experience which is similar) are for it to increase by around 2% a year for the next few years or about 2 Tcf per year to keep things in round numbers. 2 Tcf is 2,000 Bcf, which at 166,666 BOE each means an extra 1 mmbbls./day more world production. (a 2% annual increase on a world base of about 50 mmboe per day of world natural gas production in 2006).

      Data like that may help to explain how it is that, for example, the Chinese economy can be growing at 9% a year but oil imports to China are only growing by about 3% a year (there's actually leverage on those imported barrels because they have significant domestic production). This brings to mind a simple idea for the future--world oil exploration, to the extent that it can even be done, is not terribly exciting for producers at numbers below $100 per barrel. They will do infill and other non-extraordinary exploration at double digit numbers but they won't reach for projects that are 2 mile beneath their feet without having put a drill to the earth. Natural gas exploration is probably quite different, however. Using mmbtu parity an enormous amount of natural gas exploration will occur at $16.66 even given infrastructure issues so long as the reserves to be found justify 10 to 15 years of exploitation. Also, we should not underestimate the portability of horizontal drilling and fractural stimulation ideas as they apply to unconventional plays worldwide. Virtually anywhere that there have been found to be significant deposits of coal, for example, including China, there is likely to be plenty of exploitable shale gas just as there is in NA.

      Regards,

      Peter

    • Peter, It is possible that using storage levels in the USA (about 20% of world use) as the indicator for a global oil supply-demand balance may give an incorrect signal. When I search for storage data I find up to date data only for the US. The OECD data is usually months late and data from the non-OECD countries (Almost twice the US usage) is unavailable.

      Perhaps I have not found the best data? Regards, Hugh

    • CLC,

      Ruellia thinks that oil ought to see $90 as well, so the BRY poster has good company. I don't. But I admit that it could under the right set of circumstances.

      The normal pattern for oil is to make a peak by mid year to end Q3 and to close the year below that peak. Peak driving season is a real phenomenon and it is, for all intents and purposes, over. Gasoline in inventories in the US is right at the top of the range of full for this time of year and gasoline demand is still lower than last year even though gasoline is 30% cheaper than it was a year ago. How high can you imagine retail gasoline going in an environment of relatively low demand? Retail gasoline is averaging $2.64 now and folks are uncomfortable paying that. If oil went to $90, where Ruellia wants it to go, and mg and didn't move then the crack spread would be a negative $18 per barrell. That won't happen.

      If oil is going to go higher from here, there had better be some serious reductions in US products inventories.

      Regards,

      Peter

    • Good afternoon Peter and All.

      As always, thanks for your specific comments regarding the BDI as well as the necessity of looking at a broad array of indicators. I agree.

      Have read the following poster for a few years and see he is now posting on the BRY board. He uses the Fibonacci numbers which I like to see but don’t produce myself.

      http://www.investorvillage.com/smbd.asp?mb=4288&mn=35778&pt=msg&mid=7791241

      Ruellia, you will note his reference to the Treasury auction week and notations on the Crude and HUI charts of his observations of what happens to those markets during these weeks. A picture is worth a thousand words and can now see what you have been discussing regarding Fed actions. I enjoy your observations as well as following your “gutsy” short-term trades. Good luck with them.

      Time for me to get some yard work done as we are having wonderfully cool weather here as well.

    • I shorted PTEN, a land driller that depends on people drilling gas wells, at 15.05. Wall Street has goofy notions about natural gas "bottoming" so God knows if they will bid it up or not, but it looks way overextended to me and the fundamentals are terrible.

      Here's hoping that it goes to $13.
      Ruellia

    • The buck has been a good indicator to watch. In any event we might have a little W bottom forming.

      http://stockcharts.com/h-sc/ui?s=$usd

      http://www.goldseek.com/quotes/charts/usdollar/usdollarindex1hour.php

    • Ruellia,

      If you ever wanted to have a chance to view a wedge pattern that was created by a rising and a falling trendline here is one if you scroll down to the third chart:

      http://investmenttools.com/futures/bdi_baltic_dry_index.htm

      There is always a small question about how you draw such trendlines because there is subjectivity often as to how you judge the tips that form the points along which you draw the line. Obviously, you cannot draw a trendline, whether up or down, without at least two tips because you need min two points to draw a line.

      A less subjectively conceived wedge is one formed when two moving averages are about to cross. One such cross, which forms a wedge before and after it occurs, is the "golden cross" that occurred at the $SPX this summer:

      http://stockcharts.com/h-sc/ui?s=%24spx

      In some ways, you can view the current market rally is noting more than a consequence of the successful technical completion of that golden cross.

      Regards,

      Peter

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