Energy Stock Trader: Tuesday Outlook

Includes: BPG, CRK, FST
by: Steve Zachritz
Hurricanes in May?!

How's that for a CNBC story teaser headline? In case you hadn't noticed there's a swirling low pressure system off the coast of the Carolinas, and while it's not even a named tropical depression at this time, it has been demonstrating tropical storm force winds 150 miles off Cape Hateras. What's more, its track is Southeast which would take it over northern Florida and right into the center of the eastern Gulf of Mexico. While the storm has the windspeed, it lacks warm water and humid low pressure at its center -- characteristics of a tropical storm -- and is therefore unlikely to amount to much of a blow.

Oil -- another day bites the dust. Crude fell for the sixth straight day yesterday as talk of increasing OPEC output and already swollen crude stockpiles combined to send prices to a six-week low, despite the fact that expected increases in refinery utilization from here on should eat away at those large crude stocks.

Crude Stocks by year (excluding the SPR)

Crude stocks by year 08 05 2007

Gasoline fell last week, but crack spreads set another record for 2007 -- edging higher in all regions. I think we're very close to the peak for spreads this year as more and more people become convinced that the EIA's demand data, which fall out of an equation that contains multiple estimates, are a little suspect.

Cracks by region 08 05 2007

Early Read On This Week's Inventory Report: (from Bloomberg)

Gasoline -- expected to rise 100,000 barrels, breaking a string of 12 consecutive weeks of declining stocks. More important than the absolute change in inventories will again be:

  • Imports -- which seem to like the high U.S. price, and which are going to be increasingly available in the months ahead as Venezuela resumes gasoline exports to Carribean nations which compete for fuel with the U.S. Imports need to remain above 1.2 mm bopd for the next several weeks to soften the gasoline market.
  • Utilization -- which is expected to have moved up slightly in the last week. Of course last week's report showed higher utilization, but lower gasoline production and we need both moving up to soften RBOB prices.

Earnings Watch:

Comstock Resources Inc. (NYSE:CRK) -- beat driven largely by operations at its 50% owned BDE (see below). Both companies exhibited very tight operating expense control. On a per unit basis, LOE fell sharply (from $1.67/Mcfe in 1Q06 to $1.35 in 1Q07) -- which is almost unheard even among the high-double-digit production-growth small-cap E&P names; I can't think of an example of this occurring this quarter in a player with both Gulf Coast and Gulf of Mexico operations. Pretty impressive. If it doesn't run at the gate, I'll be eyeing the June 30 calls.

Bois D'Arc Energy Inc. (NASDAQ:BDE) -- nice bottom-line beat with strong production growth (42% y/y and –% sequentially) helping to offset a modest decline in realized prices as cash flow from operations leapt 23% vs 1Q06.

Forest Oil Corp. (NYSE:FST) / Westside Energy Corp. (WHT) -- I'm looking for comments on Forest's Hill County Barnett Shale progress as a gauge of the future fortunes of little Westside Energy with which Forest has a 50/50 JV on 7,000 acres. Shale leaders Devon Energy Corp. (NYSE:DVN) and EOG Resources Inc. (NYSE:EOG) have been very active in Hill county, and in close proximity to Forest/Westside's leasehold. EURs in the area have been estimated at between 1.2 to 2.5 Bcfe, and sell-side analysts are putting numbers of 10-40 Bcf per 1,000 acres on the JV acreage. The high-end of that range is probably not realistic. However, at a pretty conservative $2/Mcf in the ground (they'd likely get $2.30 to $2.50 in a sale), that would put WHT's Hill county assets at ~ $50 to 200+ mm versus the company's tiny $75 mm EV.

Holdings Watch:

Suncor Energy Inc. (NYSE:SU) June $80 puts taken at $1.75. Glutton for punishment, but with retreating oil and firm gas well over $7 Henry Hub.

BPI Industries Inc. (BPG) I was looking for the stock to get knocked for a loop, and it did: down 40% a one point and closing down 23%. No action on my part, but I think I'll buy an opening position on residual weakness (if it occurs) this morning.

Analyst Watch: Rowan Companies Inc. (NYSE:RDC) cut to neutral at Wachovia.

Nigeria Watch: MEND claims to have bombed three oil pipelines feeding the Agip-operated 200,000 bopd capacity Brass export terminal.

Iran Watch: UN non-proliferation conference moving ahead after Mahmoud accepts compromise in the meeting's agenda.