Energy Stock Trader: Thursday Outlook

Tesoro Corp.'s (TSO) 1Q07 earnings miss will be the story of the day (at least around these parts!)

Oil Inventory Report Review

Slightly smaller than expected draw in gasoline prompts modest declines in crude and gasoline prices.

Crude -- up 1.1 million barrels vs. expectation of up 1.5 mm bbs. June crude fell for the third straight day settling at $63.68.

Gasoline -- down 1.1 million barrels vs. expectation of down 1.3 mm bbs. June gasoline eased back to $2.22 on the slightly less bullish report.

Utilization & Production -- utilization increased to 88.3% but production fell by nearly 130,000 bpd to 8.536 mm bpd. That’s actually higher than the year ago week, when 8.47 mm bpd were produced.

Imports -- rose from 1.039 mm bpd to 1.164

Demand -- up ever so slightly.

Gasoline stocks now stand at 4.7% below year-ago levels. Taken together with demand, that year-to-date has run 1.9% higher than last year, the days supply metric has fallen to 20.8 (or just above where it was at the end of last summer).

Natural Gas Preview

My expectation -- 65 to 90 Bcf injection: Heating degree days fell by over half from the prior week (which saw a withdrawal) to a reading of 44, the lowest level recorded this year. That’s roughly one-third below normal and year ago levels when 53 Bcf were pulled from storage.

Holdings Watch:

CALLS -- Chesapeake Energy Corp. (CHK), EOG Resources Inc. (EOG), Newfield Exploration Co. (NFX), Southwestern Energy Company (SWN), and Valero Energy Corp. (VLO) (see refinery sale comments below) each had better than 3% days yesterday. This resulted in doubles for positions taken on Tuesday in CHK, EOG, and SWN. My Halliburton Co. (HAL) position is also inching higher.

PUTS -- for the most part, another drubbing:

• My ill-fated and soon to be abandoned put position in Anadarko Petroleum Corp. (APC) actually made a little headway south today. This is an old position and I’ll hold only as long as the chart continues to fall. No way I want to be short them after May (other than for quick trades).
• TSO continued to kick my teeth in. I added May $120 puts in the morning on the initial rise. See more on TSO below for earnings.

Earnings Watch:

Quicksilver Resources Inc. (KWK) -- good quarter

• Earnings: a little light at first glance, but operating cash flow rose 16%. Analysts were probably off on the cash/deferred split on taxes or underestimated the DD&A rate as revenues came in spot on with consensus.
• Production: up 21% YoY and 5% sequentially (on a daily basis).
• KWK’s Barnett Shale production has risen 125% over the last year and accounted for just over a quarter of total company production, up from 15% a year ago.
• LOE per Mcfe rose 10% to $1.69/Mcfe from $1.54/Mcfe in 1Q06. This is up from 4Q06 of $1.52/Mcfe
• Guidance: production is expected to be up ~ 25% in 2007, double digit growth comment about the next several years.

Tesoro Corp. (TSO) -- miss: $1.67 vs. expectation of $1.86. Stock is off $6+ pre market.

Sunoco Inc. (SUN) -- miss: top line disappoints due to extended maintenance. After backing out a gain, bottom line of $0.70 is less than half of expectations. People weren’t happy, selling the stock off 4% in after-hours trading.

Valero Energy Corp.'s (VLO) Lima Refinery was sold to Canadian oil sands producer Huskey. The tab came to $1.9 billion plus the odd $200 million in associated working capital (oil inventory).

From the things you should know file: From EIA: Over time, WTI production has dropped sharply to levels currently averaging no more than 400 thousand barrels per day, a relatively thin volume to represent price movements in a 15 to 16 million barrel per day U.S. market that increasingly depends on heavy, sour crude oils. Comment: Maybe we should use a global basket price and price it in euros.

Service Costs Not Going Down Soon: Great article from the Houston Chronicle about why service costs are rising and why they’re not likely to retrench soon.