THE WEEK THAT WAS
Before I get into all the energy stuff let me just say that bond and stock market fear outweighed fundamentals/good news 10-to-1 last week. For a good perspective on all things market without all the fear and hype, I read Charles Kirk's, The Kirk Report. I highly recommend perusing the links of his August 3 post before the opening bell Monday.
Weekly Holdings Watch: Not a lot of changes this week. In hindsight, should have sold most but not all of my call positions a week ago.
Notes on some current holdings.
- Newfield Exploration Co. (NYSE:NFX) -- limited follow through from huge earnings late last week. When the DJIA and company starts to behave, this should recover quickly.
- Southwestern Energy Company (NYSE:SWN) -- great quarter. See what I mean? The halo effect couldn't outweigh the market, despite the fact that natural gas did little this week, and most gassy stocks, who didn't have this good a quarter, ended roughly flat
- Chesapeake Energy Corp. (NYSE:CHK) -- bought additional near-month calls for the earnings call. ($35 Augusts for an average cost of $.77). CHK beat and guided higher. The stock traded higher all day in the face of a pitiful and, towards the end, sharply declining broad market. Last bid $0.95.
- Oceaneering International Inc. (NYSE:OII) -- rocked estimates and traded as much as 13% higher in the two days following an earnings beat. Cashed out of half my August $60 position on Friday up 463%. Better market and this goes higher soon.
- Valero Energy Corp. (NYSE:VLO) -- beat earnings. Decent call, although the speaking style is not to my taste, warranting several extra cups of joe. The sector got pummeled as September RBOB tested but did not fail $2. As the old adage goes, cheap can get cheaper. I think some key points about 2008 throughput and a widening spread from sour to sweet were lost in the market spiral. My August $70s were slaughtered this week. See below for the offset.
- EOG Resources Inc. (NYSE:EOG) -- what the #%*&@@#!!! Well, they ran up into earnings nicely, so maybe a little bit of profit-taking was in order, despite the upgraded production guidance. 11.5% organic annual growth for a company of this size is not too shabby. Mark Papa's comments on the call regarding stepping up their 2008 hedging program may have been misconstrued (as he lamented on the call) as worry over long term natural gas prices. Combine that with those landlocked researchers in Colorado who basically said, "Oops, we overestimated hurricane numbers again" and natural gas and stocks like EOG took it on the chin. Strangely, the mainstream media received the downgraded hurricane guidance with much less fanfare than they did the forecast for a busy season. I guess it's easier to show pictures of Anderson Cooper dangling from a stop sign like a flag in a gale than it is to show two people sipping mojitos on a tranquil beach.
- BJ Services Company (BJS) -- closed the August $27.50s bought on 7/24 for $0.78 for $2.30 (197%) on 8/1 and given the market I sold earlier. I guess I'll have to live with that.
- Tesoro Corp. (NYSE:TSO) -- bought August $42.50s (seemingly crazy with the stock at $47) as things were melting down late in the week for $0.55. Last bid $0.85.
- Western Refining Inc. (NYSE:WNR) -- this is part of my expensive-refiners-will-suffer play. Still holding the August $55s up 96% since 7/20.
- Frontier Oil Corp. (NYSE:FTO) -- ditto but entered earlier (7/12) just before I wrote this. My August 50s are bid $14.80, up 410% and I'm still holding.
CFTC Shorts Hit Another Record: The net position jumped almost 10,000 contracts last week leaping 8%, not the result of increased short interest (that was actually off slightly) but because of bulls throwing in the towel....more to come...
We had a great week with Oceaneering International Inc. (OII) and CHK soaring after beating and upping guidance, but the broader markets continue to worry. Southwestern Energy Company (SWN) beat as well, and while everything looks on target there and at NFX, the stocks continue to languish with natural gas. EOG beat and upped and they got beat for it. Finally the refiners took another hi,t and my timing on VLO was poor as I got a little too cute with my valuation call.
The accelerating sell off late on Friday was ominous. Diamonds Trust Series 1 ETF (NYSEARCA:DIA) called down a lot less than I would have thought over the weekend. Caution is my favorite word today and this week. I had an awful lot go right in terms of earnings over the last two weeks and much of it didn't matter at the end of the day because of the market. OII is a perfect example, and their stock reacted to earnings by jumping for one and a half days by 14%, but Friday afternoon saw the stock fall from up $4 on the day to flat by the close. By the way, I'll be window shopping a little this week, but let's see the broad market level out first.
Earnings We Care About This Week
XOI looks to have support at 1,285 to 1,290 -- a stone's throw from here. This corresponds to the DJIA, which also looks to have support at present levels, but could easily fall to 12,600 or even 12,000. I'm not predicting anything with that statement -- just looking impassively at a chart. For a better read on the market's technical machinations, see Nicky's View. Last week the gassy stocks fared much better than the XOI, which is laden with majors and independent refiners.
Heat Wave Watch: Two weeks of sweltering temperatures expected for a majority of the lower 48. Putting that in perspective for you folks that like numbers: Last week's cooling degree days [CDD] tally rang in at 87, the high for the year, and warmer than normal, but still much cooler than the comparable week a year ago. This week the CDD estimate jumps to 96, which is 25% warmer than normal, AND well above last years levels. This kind of heat, if it lasts, could act as a floor under gas prices at around the $5.65 to $6 level.
Tropics Watch: Four tropical waves with one dumping on Cancun as I type this. Little development is expected in the next 48 hours.
TXCO Resources (TXCO) -- South Texas, E&P, formerly The Exploration Company." Activity is centered in the Maverick Basin, and they have an angle on an oil sands play there. Partnered with Pearl E&P, a Canadian with oil sands experience. Oily: about 60% of production. Interesting.
TXCO has interests in:
- Core play is the Maverick Basin (S. Tx): porosity play, oil sands play (both tar sands and heavy oil), and the Pearsall shale play. A lot of this is in conjunction with EnCana Corp. (NYSE:ECA), but the tar sands play (7-10 B Bbs) is a JV with Canadian Pearly E&P, while the heavy oil project (100 mm bls in place is 100% TXCO.
- East Texas
- Marfa Basin (Barnett/Woodford)
Bottom Line: I don't have one yet. Obviously given the market, you can afford to wait a little while on most things. They've done well with the drill bit posting decent reserve replacement to date, but the story here is of course, an oil sands play in Texas and a new shale gas play. At this point both are still science projects. Just that oil sands potential is massive when you consider their 2 to 3 billion potential barrels of sludge priced at recent Canadian oil sands deals just under $1 US. That alone would be quite a premium over the company's current $300ish mm market cap. But given cash flow and reserves, its valuation metrics appear stretched, perhaps by all the potential upside that exists in those sands. Either way, this is one I'll watch the headlines on and wait. If the tar and heavy oil projects the move from 0.3 B to 3.3 B, it won't happen overnight.
Analyst Watch: JPM takes McMoRan Exploration Company (NYSE:MMR) to outperform, Mariner Energy Inc. (ME) upped to buy at Calyon, Goodrich Petroleum Corp. (OTC:GDP) from underperform to buy at Jefco, St. Mary Land (NYSE:SM) price target cut from $38 to $32 at FBR.