Around The Horn

Wow, what a great week for energy.

I was surprised to see another nice Friday on Wall Street. What is this, the third or fourth Friday in a row where the Dow has ended positive. I'm always surprised traders are willing to bet "higher" on a Friday, not knowing what the weekend might bring.

Most encouraging this week: the price of NYMEX/WTI held at about $94. I believe "experts" consider "sustained high prices" for oil anything above $85, maybe above $80. I think most of us are happy to see "$100 oil" but worry about a "bubble" and "demand destruction" when NYMEX/WTI goes above $105. And the effect on the economy for those holding a diversified portfolio.

Disclaimer: this is not an investment site. Do not make any investment decisions based on anything you read here or think you might have read here. 

Oil holding above $90 was a) nice to see; and, b) somewhat of a surprise, for this time of year.

Those were my thoughts as I started to "go around the horn" to see what folks were saying about the market. To my astonishment, the very first story I read was optionMonster's "energy is coming back to life," and the paper is flowing into Schlumberger.

I have long forgotten but I think Burlington Northern was one of my first equity investments, some 30 or 40 years years ago. MDU was an early investment, about the same time. Schlumberger was also very, very early for me, and I've kept it all these years, accumulating a little bit now and then. I've left a lot of money on the table (wow, I hate that cliche) with Schlumberger, but I have no regrets. I cannot time the market.

It was nice to see that optionMonster's story.

So, what else was happening around the horn.

I know "everyone" loves Cramer. The Street: next stop for Baker Hughes is $65 (currently $58). A digression: it is impossible to articulate how big the three (?; two for sure) BHI complexes are in Williston, North Dakota, the heart of the Bakken. They are absolutely huge. They alone provide an indication of how long the drilling will continue in the Bakken. But I digress. What did The Street say in that article?

I've never tracked the performance of BHI in my portfolio; it's a long term holding that I will leave to the granddaughters. I have never quit accumulating shares in Baker Hughes; it, too, is one of my long term holdings. But it's fun to see "nice stuff" written about it:

With Schlumberger and Halliburton posting better-than-expected third-quarter earnings results, it certainly seems as if business conditions in North America has taken a turn for the better. That certainly bodes well for Baker Hughes, which enjoys roughly 50% of its revenue from that region.

While Baker Hughes has consistently been overlooked when discussing the "Big Three" within the energy services space, Baker Hughes stock has actually outperformed Schlumberger by 8%. It seems management is finally ready to take that extra step forward to produce the sort of results the Street has been waiting for. With growth having returned to North America and abroad, these shares still look undervalued by at least 10%.

I don't believe The Street has ever doubted that the energy sector -- which has been marred by weak oil prices and soft rig counts -- would rebound in a meaningful way. The question has been if/when the market did recover, would Baker Hughes regain its trading status as a strong oil producer as opposed to natural gas, where there has been some continued weakness? These and other questions were answered convincingly following the company's third-quarter earnings results, which included a 22% jump in profits.

Okay, so that's the drilling services companies. What did the majors (CVX, COP, XOM) do?

Three nice stories coming out/regarding CVX which I won't link: a) the Ecuador legal story; b) one SeekingAlpha writer making the case for CVX over XOM; and, c) CVX thinking twice about throwing money down a drain. Good for them; not chasing production.

Some analysts aren't all that happy with XOM even after Warren Buffett initiated a huge stake but  XOM is near its 52-week high after languishing earlier this year.

Both COP and PSX were "up" today, and COP was near its 52-week high. Sweet.

I won't be looking at the Bakken operators today; they were down so far earlier this week, it will be awhile to see them recover. One exception: TPLM. Up almost two (2) percent but off it's 52--week highs. I could be way wrong, but I think TPLM's holdings are about right where the new ONEOK natural gas processing plant will be.

Some years ago, back in late 2011, I happened to drive by the first Stateline natural gas processing plant going up. It was incredible. I did not know what it was. Regular readers probably remember all my posts on the Stateline which I finally figured out, thanks to readers at the time. A lot of those readers seemed to have disappeared. I miss them, but that's life. I lost them about the time this blog was hacked and I changed my URL. The new ONEOK plant will be twice the size of their biggest plant in North Dakota (to the best of my knowledge); I hope to see it while it is being built. I would like to be there during change of shift. The traffic will be incredible: two hundred F-150 pick-up trcks coming and going, each carrying one or two construction workers.

Both ENB and EEP were up today. That's how good the market was today. It seems every time I've checked the past few weeks ENB and EEP were "red." EEP pays 7.3%; ENB pays almost 3%. Mr Bernanke pays about 0.1%.

So, is that it? I'm not looking at the Bakken operators. I looked at a pipeline company, the drilling services companies, and the majors.

Oh, one fracking sand company. I bet some folks did not know there was a way to "buy" fracking sand" on the NYSE. Yes: EOG. They have committed to their own ("owned") 20-year supply of fracking sand; they have their own CBR terminals; and, my hunch is they are selling sand to other operators. Could be wrong.

I can't follow BNI any more. Warren bought it. Is UNP a proxy? Not really. But UNP ... wow, I'm impressed. It's finally moving. Up about a percent today, and near its 52-week high. I can only imagine what BNI would be doing if it were still around. The UNP story brings us to a CAT scam (not a CAT scan -- that's medical, but a CAT scam). Allegations of a CAT subsidiary disposing of evidence by dumping perfectly good train parts into the ocean.

I'm in a great mood: regular readers know when I'm in a good mood -- the posts are very, very long, and ramble forever. I should put paid ads inside these long blogs. Not worth the effort. LOL.

I'm in a good mood. The market should have done well today. There wasn't one story about some EU country going broke; Bernanke is done testifying for the week; there's no hint of tapering for another month; gasoline is relatively cheap; and ObamaCare stories are fading away (about as fast as early adopters are avoiding the website, I guess).

Have a great weekend.

One more daily activity report for the week will be out later tonight, and then I get to do my least favorite activity tomorrow morning: post the "top stories" for the week, which always seem so old.

Good luck to all. 

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Meanwhile, over at SeekingAlpha, "Valuentum" is reporting EOG and CLR are two Bakken takeover candidates:

... the 2013 edition highlighted Continental Resources and EOG Resources as two of our favorite M&A candidates. Continental Resources is the largest leaseholder in the Bakken (1), while EOG Resources is the largest leaseholder in the Eagle Ford (EOG has a nice position in the Bakken as well).

"Valuentum's" conclusion:

Continental Resources and EOG Resources continue to execute nicely. We like both as M&A targets and would not be surprised to see a major take a stab at either one to mitigate their own earnings pressure. We see valuation upside to $148 per share in Continental and $196 per share in EOG Resources on the basis of their respective fair value estimates. However, investors should be cognizant of the volatility of energy prices and the large impact they may have on Continental's and EOG's respective intrinsic value estimates. In any case, these two energy ideas are among the most exciting in the oil and gas space, in our view.

All things being equal, I think CLR is more sensitive to the volatility of crude oil prices. Transportation issues, weather, and infrastructure can play havoc with Bakken operators. In contrast, the Eagle Ford is near the refineries, located in a state with long history of infrastructure development, and no weather issues. And, there might even be a slight edge to the Eagle Ford when it comes to "social acceptance." The Bakken runs the risk of "Bakken fatigue."