Energy Stock Trader: Friday Outlook

| About: Endeavour International (END)

We set a new record yesterday. The 107 Bcf natural gas injection was the largest on record for that week in history. To be clear, I'm not gripped with bearish thoughts for the gas markets at present. I'm just pointing out that we're seeing some sizable injections with all this mild early-summer weather and greater TX production and resurgent imports yada, yada, yada. Natural gas prices are likely to remain in a trading range awaiting the first real blow in the Gulf.

Natural Gas Report Review

We got a 107 Bcf injection versus my expectation of 110 to 115.
Gas inventories are now 22% above the five year average, only 8% below year ago levels.
Storage as of May 25, 2007: 2,053 Bcf
Max storage for this week in history: 2,243 Bcf (2006). At present gas storage is at it's 2nd highest level in history for this date.
We are now down 8% (190 Bcf) relative to year-ago storage levels. Due to the larger injection this past week relative to the year-ago comparable week, we cut the y/y deficit by another 2% (see second chart below). As you can see in the chart, the y/y deficit has fallen pretty sharply from five weeks ago when it stood at a bulging 16%.
We are now 22% (367 Bcf) above the five-year average, which includes 2006's record levels (see third chart below).

Looking Ahead

Here are some quick stats for the period running from the end of the second week in May through the end of October (the traditional end of the injection season). I've included both the three and ten year averages for your viewing pleasure.

Natural gas storage 01 06 2007

Aside from 2006, this is the earliest we've crested the 2 Tcf mark -- by two weeks.

Nat Gas stats 01 06 2007

PSW/ZMAN Radio Watch: I got about 2 minutes notice and was late popping into the interview, but we had some good, live picks as the two EIA reports hit the wires. Here's the replay.

Oil Review: Generally bearish. Oil rallied, slumped, then rallied hard to close at just over $64.

Crude -- 2 million barrel draw vs. a 700,000 expected build. Some commentators and journalists blamed the late-day rally in crude prices on the unexpected draw in crude stocks. I say you can't have it both ways. Either crude is high because gasoline is high or vice versa. Clearly from the chart below there is plenty of black gold splashing about:

US Crude stocks 01 06 2007

Gasoline -- 1.3 million barrel BUILD -- in line except for a few perma bulls who expected as much as a 2 mm bbs draw.

Production continued to rise. Despite a slight dip in utilization rates to 91.1%, gasoline production rose 55,000 bpd to 9.258 mm bpd. Note from the following chart that this is the highest level of production for this week in the past five years:

Gas Production Highs 01 06 2007

Imports hit their third highest level on record. A week ago I wrote that perhaps a glitch in the system had caused a fleeting decline in imports. I expected them to ramp up in this week's report, and boy did they -- hitting a high for 2007 and the third highest level of all time:

Gas imports 01 06 2007

Demand -- flattening trend continues:

Gas demand 01 06 2007

Reformulated gas production has really taken off in the last few weeks. Check out that hockey stick:

Reformulated gas 01 06 2007

Stocks remain low but they're improving:

Gas stocks] 01 06 2007

Nigeria Watch: Shell was forced to shutter another 150,000 bopd today due to unrest. This brings total shutterings in the country to 900,000 bopd, or about 25% of capacity.

OPEC Watch: OPEC 10 production rose 110,000 bopd in May from April. According to Reuters, higher output from Algeria and the UAE offset more than offset lower production from Nigeria. Cheat, cheat, cheat.

Holdings Watch: I'm in liquidation mode for my trip mid June. I neglected to post the May 30th trades in yesterday's post so they are included here.


May 30th Sold

  • 1/3 of Petrohawk Energy Corp. (NYSE:HK) position in June $12.50 Calls at $3.60 for 57% gain on a position held since April 23.
  • Newfield Exploration Co. (NYSE:NFX) June $45 sold for $3.60 for a 39% gain in 1x position held since May 14th.
  • Noble Corp. (NYSE:NE) June 90s sold for 3.60 for an average gain of 55% in a 3x position that was accumulated beginning early May.

May 31 Sold

  • Grant Prideco Inc. (GRP) June 55 Calls for $2.85. Nice 55% gain on my 7 day 2x position.
  • Halliburton Co. (NYSE:HAL) June $35 Calls for $1.40. 155% gain on 1x position held since May 11th.

PUTS: Still holding small Tesoro Corp. (NYSE:TSO) and Marathon Oil Corp. (NYSE:MRO) positions

Endeavor International Corp. (NYSE:END) update:

  • Press release regarding Enoch start up.
  • Enoch development online at 1,000 bopd net. 2007 full company guidance remained unchanged 8,800 to 9,200 Boepd.
  • My sense is that they'll be reluctantly raising production guidance at the 2Q conference call.
  • Recall that they produced just over 10,100 boepd in 1Q, and even with declines (which aren't occurring everywhere as fast as expected) they just added a 1,000 bopd to the mix, but 2007 guidance remains around 8,800-9,200. Talk about under-promise and over-deliver.
  • The CFO resigned to join up with Dan Pickering's new bank and work with an old Goldman buddy. If the stock takes any heat for this, I'd add more.
  • Balgownie should be at TD in the next two weeks. I think your risk is a decline to $1.75 on a miss with reward of a move to $2.50 with success. This is exploration and no reason to buy a stock. One in three is pretty good for the N. Sea, but the safer route is to take an opening position and reaccess after the well is announced. Either way, the stock is not garnering the attention their progress over a short time warrants.