Energy Stock Trader: Tuesday Outlook

Aug.14.07 | About: ConocoPhillips (COP)

Trust No Rally, Keep Your Sell Finger Ready. We rallied. We sold off. This applied to oil and oil products, natural gas, energy stocks, and stocks in general.  Enough said. Except to say that that was not fun and no more of those kind of days for awhile please, especially not in op-ex week.

Oil Rallies, Then Fails Back.  Yesterday saw September crude rallied $1.72 to break $73 before falling all the way back to close at $71.62. Backwardation remains in place which during the current liquidity crunch is yet another limiting factor for rallies. I still expect oil to bottom soon but it may be in the high $60s.

Refinery Watch: Refiners hit the ground restarting this week. I don’t usually point them all out but after last week’s surprise dip in utilization and production its interesting to see several units popping back into service.

  • CDU back to full rates at (NYSE:COP)’s 190,000 bpd Trainer, PA site.
  • FCCU restarts at (COP)’s 230,000 Linden, NJ site.
  • Hydrocracker restarts at (NYSE:CVX)’s 260,000 bpd El Segundo, CA refinery (actually last Friday)
  • Coffeyville to restart the flooded 108,000 bpd Coffeyville refinery ahead of schedule, with the expectation that it will be back at 100% by the end of August. This is two weeks ahead of prior expectations.

Natural Gas. Broke up through $7 for the first time in 6 weeks. Then  we broke back through $7 to close flat. One eye on the Atlantic, one eye on the heat  shimmering off a vast swatch of the U.S.

Tropics Watch: 

  • TD 4 is expected to become Tropical Storm Dean in the next 24 to 36 hours and is tracking toward Cuba and could arrive there as a Cat 2/3 Hurricane by the weekend.
  • There’s another tightly bundled low just coming out of Africa behind it.
  • In the GOMEX a broad low could also develop into a tropical depression/storm in the next 24 hours.
  • The weather girls on business news lite this morning were surprised to learn that August to October was the real meat of the hurricane season.

Natural Gas Imports Rose Last Week: Imports rallied 12.1 Bcfgpd last week, up 1.2 Bcfgpd from the prior week, which is back near the highs for this summer. This level is spot on with year ago volumes with a rise in LNG imports offsetting a decline in piped gas from Canada.

  • LNG: Jumped 0.8 Bcfgpd to roughly 2.7 Bcfgpd arresting a recent sharp decline but still well off the 3.8 Bcfgpd record set just 3 weeks ago. According to the EIA, Energy Intelligence claims LNG imports may have hit a record of 3.9 Bcfgpd last Friday which augers for a further rise in imports next week.
  • Canadian Pipes: Also rebounded slightly to 9.4 Bcfgpd. This maintains the 1 Bcfgpd deficit in imports from Canada relative to a year ago volumes.


So What’s The Early Read On Natural Gas Inventories This Week? All things being equal imports would have bumped the number up by 8 Bcf. But all things are not equal. They’re hot. Damn hot. Moreover, it was hot in gas centric  generation regions of the country. I’ll firm up my gas inventory estimate tomorrow but the following is a little run through on gas-fired generation demand in the near term.

The following busy little table demonstrates that heat in some areas like New England and the West South Central (ArkLaTexOk) means a lot more to gas demand that it does in say a region like the West North Central (square farming states). As you can see, last week’s temps were pretty strong for generation relative to norms but not especially so for all regions. But look ahead to this week’s projection. That’s hot both compared to normal and especially to last year. This is how you quickly erode the recently created YoY natural gas storage surplus.


I used August of last year as a basis for showing gas generation intensity (as this changes throughout the year) and it should be representative for each region during the same time of the year. Fore example, in the above table 45% of New England’s electricity needs were met by natural gas fired generation last August.

If anything, as we move into the hotter part of August, the generation share for natural gas should increase given: 1) the availability of gas for peaking power, 2) the increase in gas-fired capacity since last year, and 3) the stretched to the limit nature of nuclear power. If your monitor does not display the full table below click on it to display a larger version.

For those of you who prefer to look at pictures, here’s a look at the relationship between gas fired generation as a percent of total generation versus this week’s projected deviation from normal second-week-of-August temperatures.


Finally, you need one more graph to put the above data into perspective. This graph really drives home the importance of the West South Central region for heat induced natural gas demand and also confirms the lack of importance of the West North Central region, despite the excessive heat they’re now suffering, for gas demand (no offense square states but your heat doesn’t amount to much for gas demand).


Earnings Watch:

  • (NYSE:VQ) - Interesting Cal/Tex player, went public last November.
  • Three areas of operations:
    • California - Sacramento Basin (Grimes and Willows fields)) - 100% gas, 120 wells planned 2007, 2x 2006 activity levels. Also tripling the number of recompletions 2006 levels to 100. Low risk, low cost exploitation with a large set of defined drilling locations and significant upside reserve potential with downspacing.
    • California - Coastal Region (four major fields in SoCal), also 3 offshore platforms.  Huge original oil in place augers for significant reserve adds through enhanced recovery.
    • Gulf Coast Texas. Two fields, one with CO2 flood development in the planning stage with (NYSE:DNR).
    • Operates 96% of properties, has a large drilling inventory for it’s size and a long reserve life (13 years). They’ve been picking off fields in California at decent prices.
    • Rising Capex with only 4% targeting exploration.
  • 2Q07 results last night
    • EBITDA - record high $57.1 mm for the quarter.
    • production growth 11% sequential although this includes acquired volumes from two acquisitions closed in the second quarter
    • good per unit cost control both LOE and G&A. LOE per unit costs were due to a combination of higher volumes and less remedial work. Second half per unit lifting costs are expected to fall further.
    • Conf Call: 11:30 ast
    • Nutshell: five analysts follow it, it’s somewhat oil and set to grow and at pretty good clip. I’ll have expanded comments in tomorrow’s post.

Holdings Watch:

CALLS: Took some modest new positions…got burned.

  • (NYSE:HAL) Added the September 35s for $1.20. Then the markets as funds took profits in whatever was the up the most be it equity or commodity. Last bid $0.75.
  • (NYSE:NFX) Added the August 50s for $0.40. Ditto reverse action described above. Last bid $0.10.

Analyst Watch: (NASDAQ:DWSN) to buy at Matrix, (NYSE:COG) to aggressive buy at KeyBanc.

Bolivia Watch:  Morale sets August 20 as drop dead date for foreign to submit investment plans or face “annulment of their contracts”.  Sounds familiar to plans previously set forth in Caracas, Tehran, and Washington D.C.