Sentiment Watch: Still negative sentiment for E&P and oil service. The refiners are trying to make a turn. All three groups closely tied to the minute to minute price of oil and not fundamentals and stories. As such, I’ll be looking at slow, opportunistic additions to equity and not option positions except in the refiners where I may add a little more call exposure as margins once again find traction with the fall in oil prices. This Wednesday’s gasoline demand number will be key to that decision.

HK Announces Another Secondary. For repayment of debt and to fund further leasehold acquisitions. This reminds me of past cycles where the E&P companies lost site of capital discipline … not saying we are there yet but repeatedly increased capital budgets funded out of investor pockets and not cash flow don’t make me happy.

• 25 million shares + 3.875 shares for the overallotment. Another 12% dilution.
• Probably raises about $700 mm.
• I went back and reviewed my 2Q notes and their transcript and there was no hint of this as they talked about what they’d already raised this year ($1.5 billion) and the fact that they had $500 million in cash and an undrawn bank revolver so I think people are going to feel pretty sandbagged by this deal.
• I’d be asking "why now, when your shares have been pounded do you want to sell more of them?"
• I assume the rush rush rush of the Haynesville shale land grab is the answer to the preceding bullet, maybe they have a deal in mind but the seeming lack of capital discipline here is a worry.
• It’s true that the finding costs here, even with the high price of acreage, are low to historic levels and while 1 well per section puts you into HBP status, you have to wonder if the rigs and steel will be available, given the larger players appetite in the same play, to get a majority of their current acreage drilled up before leases begin rolling off or in need of extension.
• I won’t be adding on the coming dip and I may sell some of my (HK) common shares bought at $18 some time ago and reallocate until this has settled into a more friendly pattern and management has satisfied its taste for acreage and deals.

In Today’s Post

1. Commodity Watch
2. Stuff We Care About Today
3. Odds & Ends

Commodity Watch:

Crude Oil fell 8% last week to close at $115.20; that’s off $32 per barrel since its peak on July 11. The decline has been brought about by fears of global demand destruction, a lack of geopolitical new news (other than an all out war brewing between Georgia and Russia- see first bullet below), and a recent rally in the dollar (see second bullet below).