Energy Stock Trader: Friday Outlook

| About: Dune Energy, (DUNRQ)

Emergency Fed Rate Cut Dreamed Of On Wall Street

Headlines like that throw fundamentals to the wind. I have puts on the Energy Select Sector SPDR ETF (NYSEARCA:XLE) and some refiners, but frankly I am not covered relative to my longs if there is a capitulation today. Commodities are again taking it on the chin this morning as fears escalate that this could turn from a stock market thing to an economy thing. I'll be raising cash as usual this time of the month.

Blind Squirrel Finds A Nut Watch -- Natural Gas Storage

I said 45 -- 50 Bcf Injection

  • Consensus: 53
  • Actual: 42.
  • Gas jumped $0.366 (one of the very few green things on a very red day) to close at $6.586.

Nat Gas Sept Contract 10 08 2007

Gas inventories are now 17% above the five-year average, and 4% above last year's record levels.

  • Storage as of August 3, 2007: 2,882 Bcf (updated August 9, 2007).
  • Max storage for this week in history: 2,763 Bcf (2006).
  • We are now 4% (119 Bcf) higher than year-ago levels, up from 2% ahead last week.
  • We remain 17% (420 Bcf) above the 5-year average which includes 2006's record levels (see third chart below).

Looking Ahead

Gas Table 10 08 2007

As you can see in the table, average injections from now through the end of the traditional injection season get us to "high" levels of storage. Even the minimum level of injections, which occurred last year and is therefore in both the 3- and 10-year scenarios gets us to a lofty 3.5 Tcf, which by historic standards is more than "full".

The record short interest on the part of the non-commercials will be supportive of prices, but apparently only once covering is induced by either sharply lower injections or a storm.

Where We Are Now

Gas graphs 10 08 2007

Take note of that last graph. With the current heat wave it seems very likely we will start to quickly eat away at the recently accumulated YoY surplus, which should help to maintain natural gas prices at or above the $6 level.

Tropics Watch #1: NOAA forecast continues to call for a busy season. Tropical activity is expected to ramp up in the immediate future.

Tropics Watch #2: As if on cue, the Caribbean satellite looks even busier.

EIA Watch: EIA projects Henry Hub will average $7.45 in 2007, up 7.5% from 2006 average levels. They expect 2008 to increase to an average of $8.02. EIA also says to expect a decline in LNG shipments for the remainder of the year as cargoes are sent to Europe and Asia.

No Vested Interest Watch: From Reuters -- Venezuela says global oil "inventories are much higher than average...There is no need to increase production." Comment: Take that EIA / IEA !!!

Analyst Watch: Citigroup raises Tesoro Corp. (NYSE:TSO) and Valero Energy Corp. (NYSE:VLO) to hold, Marathon Oil Corp. (NYSE:MRO) to buy. DB takes Holly Corp. (HOC) to hold from sell.

Endeavor International Corp. (NYSE:END) -- talk about one for the IRA. They continue to perform on the exploitation side, but can't get the exploration side to work for them this year.

Single Digit Midget Watch #2

Dune Energy Inc. (DNE) -- Those of you who've read me for a while know I make a habit of following people around, not just stocks. Not in a creepy, stalker way, but in "hey this guy did good over here, and now he's over there, let's see what he can do over there kind of way". I first ran into some of the new members of management here when they were at another sub-$5 stock -- Remington Oil and Gas. After selling that enterprise in the $40s just a few short years later, they're back on a new horse. That'd be a cheesy metaphor unless you knew their affinity for bronze cowboy and horse statues, or had a small one on your shelf like I do. Sorry, I digress.

  • Announced production will meet or beat 55 MMcfepd for a year-end exit rate (approximately double year-end '06 production) and up sharply from an 31.6 Mmcfepd exit at 2Q07, due to a combination of growth from the Barnett and from the company's newly acquired assets in the Gulf Coast.
  • Barnett: The 10 Barnett 100% WI wells planned for the remainder of 2006 account for roughly one-quarter of the expected production increase, and they're not drilling proven undeveloped reserves here, so look for some nice adds to reserve metrics at year end.
  • They bumped their position here on Tuesday from 2,900 to 8,000 gross acres. I'll be interested to learn what the cost of acquisition was here.
  • They're in the process of adding a second rig now and plan to maintain a continuous drilling program here.
  • 2007 exit rate '07 is expected to be ~10 MMcfgpd.
  • The other three quarters of the growth is expected to come from low-risk step-out drilling and recompletions. Not a big swing for the fence is in there, nor needed to get to the growth target.
  • Don't own it yet if ever. Like to see the 2Q balance sheet first, but this is one of those many interesting things that get lost in the ever growing sub-prime induced morass that is the broader market these days as the stock closed flat. Anyway, just watching for now, but I like to root for the smart guys who've done it before. Expect to see some model work and a report in coming weeks.

I'd say have a great day, but with the futures pointing to a drubbing, at least at the open, how about try not to get killed -- and have a good weekend if I don't see you comments!