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Natural Gas Report Day:

  • My estimate: 45-50 bcf Injection. In the year-ago period we got a 12 bcf withdrawal as the mercury soared, so look for another good-sized increase to the YoY storage surplus today. In fact we’ll jump from 2% over last year to 5% if I’m within a 10Bs of being right.
  • Hot But Not When Compared With Last Year.  CDDs (cooling degree days) hit their highest level of the year at 87 last week, and while this was 22% warmer than normal, is was still 12% below last year’s sweltering heat.
  • Natural Gas Imports Dipped Smartly Week to Week. Gross imports from LNG shipments and pipelines fell 1.25 bcfgpd from the prior week to 10.9 bcfgpd, down 0.7 bcfgpd from the year ago week. This is the second week in a row that LNG has tumbled, and it could just be a timing thing, or it could be a signal that LNG shipments are being diverted to higher-margin locales now that the bloom has come off the North American natural gas rose this summer.
  • Consensus: 53 bcf Injection From Dow Jones’ Survey. Anything less than 50 and I think gas maintains or perhaps rallies a little, as the heat of last week is less than the heat of this week.

Tropics Watch: Getting busier.

Stocks We Care About:

  • Chesapeake Energy Corp. (NYSE:CHK) Debt Deal:

    • $500 million  of Contingent Convertible Senior due 37 replacing a like amount of their revolver. These are 30-year notes bearing annual interest at 2.5% sold at a slight discount and puttable to the company beginning in 10 years.  The revolver has a mix of rate possibilities, but all are higher than 2.5%.
    • On top of that Fitch revised it’s outlook to negative last night based on their assumption from management’s comments on the 2Q conference call. They site debt-to-reserves metrics that only take into account 1P reserves as stated in the most recent Q (10 Tcfe). I think the company deserves a less mechanical calculation than that based on their vast unbooked potential, but that’s why I don’t work for a debt rating agency.
    • On top of that Wachovia cut the shares to neutral this morning.
    • As of June 30 debt-to-total-capital was 45% and debt to EBITDA was 2.0x, both measures well within the limits of the bounds of reasonability.
    • The stock fell 4% after hours.
  • Petrohawk Energy Corp. (NYSE:HK) -- After the numbers: closed up 3.5% after trading as high as up 6%. I think this goes higher.
  • Southwestern Energy Company (NYSE:SWN) -- after waiting for days for people to care less about the broad market and oil prices (of which they sell very little), Southwestern finally had its day in the sun today. No news, but it was probably helped by strong results from kindred shale gas E&Ps Quicksilver Resources Inc. (NYSE:KWK), and HK’s strong operational and financial performances which got people to refocus back on gassy stocks. Or maybe it was just a coincidence. See added calls in holding watch.
  • Comstock Resources Inc. (NYSE:CRK) -- added another 2.5% on top of the 7% gains from yesterday’s session following it’s great quarter (still without me). I kept thinking it would come in and the spreads aren’t the best, and I was too cheap -- and there you have it. No position. But hey, it should retake $30 in short order -- it came close yesterday.
  • Oceaneering International Inc. (NYSE:OII) - up 963% on the remaining half of my call position purchased way back on 7/18. And I’m not chasing, but will close before week’s end.
  • Frontier Oil Corp. (NYSE:FTO) -- After the numbers: closed up 2.4% after trading as high as up 7.4%. I think this goes lower. Comments from the call. Still holding the August $50 puts now bid $13.80 (up 376%) following purchase on 7/12.
  • Western Refining Inc. (NYSE:WNR) -- Rallied HARD on the FTO numbers, even after gasoline prices reversed and closed lower. Was up as much as 12% at one point, and closed up .  I’m holding the August $55 which had, until yesterday, been performing well -- but are now down. See holdings list for added puts.

Oil Report

crude-table-080807.jpg

Crude: For the second week crude did the exact opposite of what you’d think and sold off

  • Crude Imports:  fell by 167,000 to just under 10 mm bopd
  • Refinery inputs: down 419,000 bopd

Gasoline: You would think being off by a factor of 2x in the wrong direction would inspire prices to move. And they did for the first few hours after the numbers came out, but in the end, September RBOB fell a half cent on the day to close at $1.9377.

  • Utilization: Fell Off A Cliff. Down 2.4% to 91.25%.  This was completely unforeseen by everyone including myself. When the number came out I think I violated an FCC air waves language rule on MN1.com, but quickly recovered with something like “this is good for the refiners, heck, this is good for the energy group in general with that oil draw” -- that’s the gist of it anyway.
  • Production fell as well to 9.15 mm bpd from 9.4 of late. Actually makes sense with the down utilization for once. Distillates production fell a commensurate amount as well.
  • Imports crept back up to 1.4 mm bpd, which really saved us from an even nastier decline in stocks.
  • Demand remained high at 9.7 mm bpd. This should come off soon, but as this is the most estimate-laden number in the collection here, it may already be falling.

Holdings Watch:

CALLS:

  • CHK -- Sold half my August $35 position for $1.65, up 114%
  • CHK -- Bought half of the previous sale back at $1.–.  Given the news above, I obviously wish I sold the whole bundle prior to the close. I continue to hold these and the Jan 08s.
  • Halliburton Co. (NYSE:HAL) -- Added to my $35 August calls at $0.75. This gets me down to an average cost of $1.45. Last bid $0.50. I’m done on this for now until the stock starts to act better.
  • Southwestern Energy Company (SWN) -- Added August $40s for $2.70. Last bid $2.35.

PUTS:

  • Western Refining Inc. (WNR) -- Added  August $55 in a strictly “too far too fast” trade for today’s earnings for $1.65. Last bid $1.65

Earnings Watch:

  • WNR Report $2.29 vs. expectations of $1.99. They paid off $100 million of debt and saw increased throughput at one of their refineries.

Analyst Watch: Frontier Oil Corp. (FTO) and Alon USA Energy Inc. (NYSE:ALJ) ratings raised at Carris. CHK cut to hold at Wachovia. Transocean Inc. (NYSE:RIG) to strong buy at Matrix. Marathon Oil Corp. (NYSE:MRO) to overweight at Lehman.

Source: Energy Stock Trader: Thursday Outlook