Energy Stock Trader: Tuesday Outlook

Includes: NFX, SGY
by: Steve Zachritz

Oil made a run on $63, but closed barely positive at $62.46. This morning oil is easing on resumption of production of 48,000 bopd from Chevron Corp. (NYSE:CVX) in Nigeria. Look for a test of $61.50 today.

June RBOB got chop-blocked by lack of Nigerian news/profit taking. Gasoline had one of its worst days in recent memory yesterday, falling $0.06. Today gasoline is off another $0.02 as traders anticipate a second week of inventory builds. I'm still holding that we are seeing the beginning of peak in gasoline prices, and that we've seen the top on wholesale prices this year.

Early Read On Crude Inventories:

Gasoline -- up 900,000 barrels.

Distillate -- up 1.2 mm barrels.

Natural gas took another short-lived trip over $8. June gas spent most of the trading session above $8 yesterday, and even tested and beat the previous 2007 high at $8.11 before retreating to a more modestly up just a nickel at $7.95.

Analyst Watch: Valero Energy Corp. (NYSE:VLO), Tesoro Corp. (NYSE:TSO) cut to neutral at Banc of America. Marathon Oil Corp. (NYSE:MRO) upped to buy at BofA. Aurora Oil & Gas Corp. (AOG) cut to neutral at Jefferies.

Holdings Watch:

Calls: Newfield Exploration Co. (NYSE:NFX): added 1x position in June $45 calls.
Petroquest Energy Inc. (NYSE:PQ): added 2x position in July $12.50 calls.

Puts: No action, but I'll be looking to dump the last of my TSO $115 and $110 puts as expiry approaches.

Newfield takes a rocky bite of stone: Yesterday, before the open (but too late for post time) Newfield Exploration Co. (NFX) announced that it had acquired a majority of Stone Energy Corp.'s (NYSE:SGY) Rocky Mountain interests.

  • Purchase price: $575 million.
  • Proved reserves: 200 Bcfe -- 70% gas, 52% developed. ($2.88/Mcfe). In a vacuum that seems a little pricey. Anadarko Petroleum Corp.'s (NYSE:APC) recent proved sales have been for closer to $2.50, although I could make an argument that they had shorter RPs. Of course, APC paid stunning premiums for Kerr-McGee and Western Gas last summer.
  • Probable and possible reserves: 150 Bcfe. Risking that by two-thirds yields 50 Bcfe for a more agreeable 3P F&D cost of $2.30/Mcfe.
  • Long reserve life assets, on the proved basis alone this would yield a 5% increase in reserve life this year helping to pushing NFX's RP north of 10 within 2 years.
  • Acres: 600,000 net undeveloped. Strewn in and around NFX's current territory. Acreage overlays nicely with existing Uinta play and gives them an entry into the largely undrilled southeastern end of the Pinedale Anticline. It more than doubles their position in the Williston Basin, giving them a wealth of prospects there and in several other gassy premier plays (Powder, Jonah, and deep rights in several as well).
  • Announced that not only will Bohai get the boot (low price realizations and it's pretty well developed at this point which is always a good time to sell), but also their UK North Sea assets which have been. Maybe they'll sell these to Endeavor International Corp. (NYSE:END).

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