General Market Musings
By: Tim McPartland,
Sometmes we just write about various items we observe in the markets that are of interest to us (although not always for you).
One item that caught our attention was a news item on New Source Energy Partners (ticker:NSLP) which is now trading at 11 cents (yes–11 cents). The company has a cumulative, convertible preferred issue outstanding (ticker:NSLP-A) with a coupon of 11%. On September 14th the board of directors declared a regular quarterly payment on these shares. This in itself seemed a bit strange with their common units trading for just cents that they could pay the preferred distribution. And strange it was as on September 28th they announced ‘just kidding‘. Seems they kind of overlooked the fact that they would have a borrowing base deficiency this month which means they will have more debt than their credit line will support. Covenants in the borrowing base agreement do not allow for payment of distributions when you are ‘underwater’. Is there someone asleep at the wheel here? Certainly seems to be.
We watch natural gas producer Magnum Hunter quite closely–they used to be a favorite of ours. What a mess. Chairman and CEO Gary Evans has been very successful in his career–and like Donald Trump, he is somewhat full of himself. The company reported way back in late July they were ‘in discussions’ to sell Eureka Hunter–their gathering and pipeline system. Then in August they announced they had offers on the table to purchase Eureka Hunter. Well so far no word on a sale and the common shares are trading at 35 cents today. Surprisingly the company has not suspended preferred stock dividends yet, but they will–any minute now unless they sell the pipeline for a tidy sum. We suspect that the potential buyers know that they hve Magnum Hunter by the short hairs–why pay a premium when it will go cheap in bankruptcy.
Additionally in August Magnum Hunter said they had a agreement with a private equity firm on a 430 million dollar joint venture for exploration on a portion of their acreage. Again no final word on this agreement–we think someone got cold feet.
Even though the equity markets have swung quite broadly this week we think the trading has been a little refreshing. News isn’t fixated on the FED–geez we have had enough of that talk. Trading seems to be fundamental in nature—globally soft economies with an outlook of earnings being off around 4% in the SP500. What reason is there for share prices to move higher? Obviously with the 10 year treasury at 2.06% today there is no great level of confidence in global growth.
It is interesting that we had a pretty large build in crude oil stocks this week–again maybe playing into the global economic slowdown. We keep watching for the time when production falls and the measly 1 million barrel/day excess supply is gone. I mean globally we are oversupplied by just around 1-2% per day. Likely about the time we are all lulled to sleep by the energy story supply will fall and prices will rise. Unfortunately we don’t have any confidence that a price rise of any magnitude will hold as production can be ramped up so quickly it would make a persons head spin. We follow the oil and gas action in the Bakken on Bruce Oksols website ‘The Million Dollar Way’. This is NOT an investment website, but you can sure learn a bunch about the Bakken by reading Bruces blog.
Enough rambling for now.