Energy Stock Trader: Tuesday Outlook

In Today's Post:

1. Holdings Watch - Sold the last of the (SLB), added (CLR) and added to (HAL) and (HK) call positions.
2. Commodities Watch
3. Stocks We Care About Today - (NBR), (BHI), (SII)
4. Crack Spread Update
5. Odds & Ends

Holdings Watch: The Wiki Holdings and Performance pages are updated for current positions.

CALLS:

• (SLB) - sold the second half of the May $100 Calls taken last Thursday prior to earnings on Friday for $5.50, up 182%. Looking at the closing bell, it appears I sold a little early…but it's a problem to have. I still plan to add longer dated calls but see no reason to chase the current run in the shares.

• (CLR) - Entered the June $50 calls (CLRFJ) for $1.75. Last bid $1.40.

• (HAL) - Entered May $47.50 calls (HALEW) for $1.05. Last bid $1.69. This is one my favorite things to do. Read the press release and listen to the call and then act. Not see the number and sell which seems to be the mission of many investors. I continue to hold these calls as well as the May $45s and July $50s.

• (HK) - Added the June $25 calls (HKFE) for $1.30. At the time I wrote "stock starting to move again" and indeed it closed at its all time high at $23.81. Continue to hold these calls as well as the May 20s and 22.50s and the June $22.50s and am yet again over weight in the name. They report earnings on May 6th and I plan to take some profits off the table prior to the call just to reduce my exposure if they put on a run to $25+ between now and then. Still waiting on well news here…could be any day or could wait for the call.

PUTS: No trades yesterday.

Commodities Watch:

• Crude Oil: closed up $0.79 at $117.48 in boring trading yesterday. This morning crude is trading up slightly into the high $117s after breaching $118 earlier.

• Nigeria Watch: yesterday MEND said it blew up two pipelines in the Niger delta and later in teh day Shell confirmed that an additional 169,000 bopd of Bonny Light is now offline. No word on a repair schedule just yet.

• Early Read on Crude Inventories (from the Dow Jones Survey):
  • Crude: expected up 1.5 mm barrels,
  • Gasoline: expected down 2.3 mm barrels,
  • Distillate: expected to be unchanged.
• Chinese Oil Demand Keeps Rising. Latest figures for March show oil demand increased 8% on YoY basis, the strongest monthly increase in 19 months. I continue to believe that some of this is actual demand and some of this is currency hedging via physical barrels.

• Natural Gas: closed up $0.15 at $10.73 and actually crude for much of the day as the continued cold and absent LNG boosted futures. This morning gas is trading flattish.

• Imports: Up 0.2 Bcfgpd week to week but down 2.0 Bcfgpd YoY.
  • LNG continues to languish at 0.7 Bcfgpd despite the inauspicious startup of (LNG)'s Sabine Passi regasi facility today. The stock tumbled 36% yesterday on the achievement of what I'm sure is the company's biggest headstone milestone event.
  • Canadian imports ran at 8.9 Bcfgpd, up 0.6 Bcfgpd from year ago levels.

ZComment: Unlike the crude market, the gas market is facing higher supply. Prices continue to ignore and I honestly don't know when this egg will crack. I suspect that an acceleration of injections into storage at a greater pace than last year will have a moderating impact on prices but so far gas shows no signs of slowing down. I suspect a correction in crude would send gas lower but again, the focus here is on hurricane and expected summer heat and not on the numbers at hand so I will not be adding more puts until reason sets in.

Stocks We Care About Today:

NBR Reported A Nice Beat and Said Exactly The Right Things. My long time readers know I pretty rarely do a cut and paste on a press release but management did a fine job here hitting all the hot points I was looking for and adding a little extra about improving orders in the international segment and even hinted at improved results in the shallow waters of the Gomex. We continue to hold a nice position in May and June calls here.

The Numbers:

• EPS of $0.81 vs $0.76 expected,
• Revenue of $1.32 B vs $1.278 B expected.

We went into the Nabor's position a couple of weeks back and have since added to it in anticipation of today's conference call. The original idea was best stated last Tuesday when I wrote:

• the onshore drilling group has been out of favor for quite some time now due to over capacity which yielded falling day rates and spare rigs in the U.S. and declining drilling activity in Canada. While it is difficult to call a turn to more favored sector status on the part of the analyst community it does appear to be slowly moving that way as E&P's up their capital budgets, especially where it pertains to rig intensive resource plays like the shales.

• Last Friday I added: NBR by the way is great play on the Bakken. Their rigs are the no kidding around size 1,000 horsepower variety you need to drill 10,000 feet down and then a mile over the section. They have 15 rigs in the play now working for the likes of EOG, WLL, CLR, HES, MRO, COP(Burlington) and the play looks to be accelerating so NBR is going to benefit from increased natural gas AND oil.

And They Answered With The Following:

"It is becoming increasingly likely that we may have already seen a bottoming out in the results for our large, important Lower 48 Land Drilling unit,"

The largest component of the pending incremental demand will be 1,000 and 1,500 horsepower rigs with upgraded pump capacity and power. These rigs are in short supply today and will be at a premium in any recovery … Nabors currently has 85 stacked rigs with roughly 50 of these capable of returning to service with limited expenditures since virtually all of the stacked rigs have worked in the last 18 months. Approximately 30 of these rigs are in this highly desirable 1,000 to 1,500 horsepower class.

and then they added:

International operations we are seeing a further increase in the already high level of bidding activity and we are enjoying a high success rate in capturing these bids in all of the important global markets, including the Middle East, North Africa, South America, Russia, and even Eastern Europe.

Zcomment: Now I call that saying the right things.

Nabors 1Q08 Conference Call: 11 Est.

BHI: Reports Slight Miss, Sees North America Improving.

• Reported EPS of $1.18 (after items) vs $1.20 expected. Revenue came in a little light at $2.674 B vs 2.695 B expected.
• Notably, North American revenues were up on a YoY (+8%) and sequential (+4%) basis. Revenue outstripped the percent gain in rig activity which again sounds like bottoming action on pricing. Even Canada was up 4% on revenues vs a 1% decline in activity.
• "results from North America were better than expected" ….hmmm, seems to be something of a recurring theme with 1Q08 results.
• they see higher drilling activity in 2H08 and in addition to natural gas activity pointed to higher levels of oil directed activity as well. (Bakken).
• International ops still seen growing low to mid teens. Latin America was very strong, especially Brazil, on a YoY basis as was Russia. North Sea remained weak like it did for almost everyone reporting so far and no one is calling a turn there yet.
• Margins in drilling and eval were flat which is impressive.
• Conference Call: 8:30 Est. I don't have a position but want to hear their comments.

SII Reports In Line Quarter

• Reported EPS of $0.87 vs $0.87 expected; Revenue came in at $2.37 B as expected.
• Results were led by strong international growth (revenues up 24%) led by Russia/FSU, North Sea and Latin America.
• Margins in their oilfield segment - bits and mud - inched up 0.2% from 4Q07 and 0.6% from 1Q07.
• Conference Call 11:00 Est. Same as above, no position at this time but want to hear their take on several markets, domestic and international.

BJS Misses, Guides Next Quarter Lower.

• Reported 2Q08 EPS of $0.43 vs expectations of $0.55.
• Guiding 3Q08 to EPS of $0.39 to $0.43 … current 3Q consensus is $0.50.
• Miss was due to significant pricing pressure in January in North America, Feb and March said to be more stable. The see a brighter outlook going forward despite the second bullet above.
• Conference call at 9:30 EST…. I don't have a position here and will read the transcript.

Offshore Drillers: Brazil to spend $72 B over next four years. Ok, so while there is some debate about the potential size of PBR's Carioca fields (600 million barrels to 33 billion barrels) there is no longer any doubt about their capex plan regarding the largely offshore program coming in the next 4 years. The 5 to 8 billion barrel Tupi field alone will see 10 deepwater rigs added for evaluation and development drilling. So the picture for deepwater capable drillers just keeps getting better.

Crack Spread Update: For the most part cracks inched higher last week as gasoline paced gains in crude. Refiner discipline is key now as we approach a time when non-trip related gas demand should begin moving up. If the trajectory of gasoline in storage continues to fall with the same slope it has had in recent weeks I think the refiner will be able to set a tone on their conference calls that is better than on the last two calls. Nothing of real note in the graphs below except a little more improvement and that YTD northeast cracks are actually running ahead of 2Q levels. This makes some sense in that they both ran up less last year and the region has seen several operating snafu of late. I'm contemplating adding (SUN) and (VLO) to my current small position in (TSO).

Odds & Ends

Analyst Watch: Friedman Billings upped their price target on (HAL) from $43 to $55 and on (WFT) from $74 to $91. (SM) upped from hold to buy at Jefferies.

Comments

[saifl]

Wont be adding any puts on NG? Oh that is bad. What happened to all those awesome demand and supply graphs Zman? Supply up so much? Really...did you figure out demand? Uh? Demand is sucking away LNG and electrical generating capacity is up. Coal is more expensive than NG is some parts while little ZMAN is stuck on stupid charts. I remember the same BS when you were justifying oil should go lower. Wasnt that $50 ago?

[investorslive]

CLR $5 correction what are your thoughts? Long or wait for more of a dip?

www.investorslive.com/.../