Energy Stock Trader: Friday Outlook

| About: Endeavour International (END)
Gas Inventory Update: My estimate: 90-110 Bcf Injection. Actual 110. I was a little surprised by the number given the dip in both LNG and Canadian imports last week and the slightly warmer weather. However, the Street was clustered in a range of 105 to 115, and consensus was said to be 107 Bcf just before the number was released.

Yesterday I wrote:

Since analysts are setting the mark pretty high this week I'd say the over/under for gas is at least 105. The 107 Bcf number caused gas to tumble $0.255, or 3.2% to $7.825. So the number may have been expected, but it certainly wasn't welcomed.

Most Important Chart of the Day Watch: Injections continue to run high. Triple-digit and rising, with lower imports and more heat. Hmmm. Something tells me those Texas figures for March that showed a 1.8 Bcfgpd y/y rise look even higher now. Almost certainly Wyoming as well.

However, shorts be nimble, shorts be quick. The first sign of sub-triple-digit injections is likely to send gas right back above $8. Also, if prices fall to far, say to $7 (which I really don't think will happen), you'll start to see lower LNG imports and the whole scheme becomes a self-correcting prophecy.

Gas Injections by Week 08 06 2007

Gas inventories are now 21% above the five year average, but only 7% below year ago levels:

Storage as of June 1, 2007: 2,163 Bcf (updated June 7, 2007).

Current Gas Storage 08 06 2007

Max storage for this week in history: 2,320 Bcf (2006). At present, gas storage is at its 2nd highest level in history for this date.

We are now down 7% (157 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 1%. As you can see in the chart, the YoY deficit has fallen pretty sharply from six weeks ago when it stood at a bulging 16%.

We are now 21% (379 Bcf) above the 5 year average which includes 2006's record levels.

Here are some quick stats for the period running from the end May through the end of October (the traditional end of the injection season).

Injection table 08 06 2007

moving on to oil and products...

Oil rallied on a variety of geopolitical/fear/storm/technical concerns yesterday. July crude advanced $0.97 to $67.93 yesterday as traders weighed news of a potential strike in the non-export country of Brazil, the threat of Turkish Hordes, OPEC belligerence over U.S. ethanol aims, and the remnants of Gonu which closed Oman ports for a short time, shorter according to their operator than according to CNBC, and restricted traffic through the Strait of Hormuz.

Gasoline failed to rally. An early rally in gasoline, brought about by the rising tide of oil, failed before the close of trading with July crude closing essentially flat at $2.19. I still think it's going lower still as the y/y deficit, which has been behind the rally, continues to erode. That said, EIA numbers tend to balance out along a linear path, and any outlier, like the 3.5 million barrel build yesterday, often results in a corrective report in the subsequent week. Not that I mean we'll see a draw, but you might see a much smaller build next week even as utilization rebounds. Which it looks like it should.

Analyst Watch: Endeavor International Corp. (NYSE:END) -- downgraded by JPMorgan from Overweight to Underweight -- this from an analyst who couldn't pronounce Balgownie on the last conference call, who didn't know if it was an oil or gas prospect, and had the estimated reserve size off by a factor of 6. He was "betting" 2 rating levels on one well?! He must like to put the paycheck on the wheel when he goes to Vegas. Anadarko Petroleum Corp. (NYSE:APC) upped to buy at Citi. FBR ups Petroquest Energy Inc. (NYSE:PQ) price target from $14 to $16. Grant Prideco Inc. (GRP) price target upped a few bucks at Stifel. Finally, BoA raised price targets for all of the coals. I've been looking at the coals again, especially with SO2 allowances trading so high fostering greater demand for more low sulfur Wyoming coal, but have not yet gotten the pullback I'd like to see.

END -- Balgownie dry hole. They found 130 feet of pay in the targeted sand but the hydrocarbons present were of non-commercial quantity.

Now what?

  • They move the rig to the Emu prospect. 25% interest in an estimated 38 mm boe reserve target. Spuds on the heels of Balgownie and takes about 45 day to reach TD. It's a Johnston field analogue, and development would be a multi-well plan tied back to either nearby Babage or Johnston facilities. "A little higher risk than Balgownie."
  • They report 2Q numbers and probably raise 2007 production guidance.
  • Today only the miss matters and the stock is likely to trade well under $2 initially. I plan to wait and see how hard the selling is in the morning before committing further capital. If it get's blasted by some ridiculous amount, say dropping to $1.50, I'll be adding. I suspect the stock will be dead money after an initial recovery/dead cat bounce until earnings or Emu results, whichever come first.

Holdings Watch


Comstock Resources Inc. (NYSE:CRK) -- got stopped out of my CRK position for a 14% loss. I'd roll this to July or further out if I weren't headed out of town soon.

Petrohawk Energy Corp. (NYSE:HK) -- sold half my June $12.50 puts for a 48% gain on a six week hold.


No action. Tesoro Corp. (NYSE:TSO) and Marathon Oil Corp. (NYSE:MRO) June 120 Put positions starting to wake up a little in this down market. I'll run away from MRO soon, as it's just too strong/resilient and has been having too much exploration success.

OPEC Production Increases Expected To Slow A Bit from Upsteam

Roy Mason of consultant Oil Movements estimated OPEC seaborne exports will rise to 24.31 million barrels per day from 24.19 million bpd in the four weeks to 26 May as refineries step up fuel production to meet summer demand. "The increase is a seasonal thing but it is not very much," Mason said. "It's nothing like what happened this time last year." The forecast marks the fifth week that Oil Movements has reported a rise in shipments and suggests adherence by the producer's club to agreed supply curbs is slipping, Reuters reported. Comment: They're still cheating on their quotas, but the rate of cheating is slowing.