01
May

Tuesday – E&P Earnings Abound

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Early Read On Crude Inventories (from the Bloomberg Survey):

  • Crude - up 1.5 million barrels. I need a fleet of suburbans that can run on straight crude to get this number to fall. This would push crude stocks to 5 month highs.
  • Gasoline - down 1.3 million barrels. This actually seems light since more refiners appear to have been offline than in the prior week. Maybe if imports pick up significantly or demand dips (fat chance) although we are approaching the $3 mark which made many motorists choke last summer.

1Q07 Results To Date, Rising Production, Skyrocketing Costs. This is by no means a comprehensive list but it includes three of the largest big cap E&P names and two others I've been harping on. As you can see from the table production growth is atypically high. Lease operating expense on a per unit basis continues to spiral higher as well.

loe-per-mcfe-1q07.JPGFirst, this obviously good for the service companies. Second, this is supportive of elevated natural gas prices to a point in that much of the production gains on the gas side are coming via onshore production in Texas and Wyoming. Obviously if the big boys keep up this pace natural gas prices will eventually fall. However, there's alway the threat of production curtailment as plays are marginalized by costs and these rising service costs continue to push that tipping point higher. I'll keep adding companies I consider to be key this picture as the earnings season progresses. Suffice it to say that anyone that manages to eake out better cost control is going to be the sellside's favorite and vice-versa (whipping boy).

Earnings Watch: All reported after the close last night

  • (APC) - Ok.
    • Earnings: Reported $0.23 vs expected of $0.72 but it contains a number of charges. Production was just over the top end of the guidance range. Both oil and gas volumes beat the high end of estimates.
    • Guidance: looking for a sequential decline in production for 2Q of between 10 and 15% although it looks like at least half of the decline is related to the divestiture program.
    • Costs: The good side of the divestiture program is the higher cost nature of the stuff they're punting. The company is looking for a significant redugion in per unit LOE next quarter. (< $1 / mcfe).
    • Algeria provides sucker punch. An "exceptional profits tax" (sound familiar?) is being applied to the full value of revenue and not just that in excess of $30 per barrel.
    • I'll address anything interestng from the operations update in comments.
  • (EOG) - Better.
    • Earnings: $1.11 (after adjustments) versus expected EPS of $1.03. Total company production increased 8% but U.S. natural gas production increased an eye popping 21% YoY led by Barnett Shale production.
    • Guidance: reitereting 10% 2007 growth target. Expecting 18% growth in U.S. natural gas volumes on top of the 14% seen last year.
    • Cost control here is truely impressive. Only up 10% on a unit basis YoY.
  • (SWN) - Best.
    • Earnings: $0.30 vs expected of $0.26 on the back of a 44% increase in production volumes. Production blew out the top end of the guidance range by 9%!
    • 2007 Guidance: increased the bottom end of the range. Range now equates to 48% to 52% YoY growth.
    • Fayetteville shale gross volumes increased to 155 Mmcfpd vs 120 disclosed just two months ago. Nearly half of 2007 production is expected to come from the Fayetteville, up from just 16% of total production last year.
    • In other areas (Arkoma conventional) and E. Texas, the company continue to meet with excellent drilling results yielding increasing production.
    • Costs are on the rise here as well but the expected increase appears within reason.
    • One cause for pause. Southwestern may drill fewer wells in the shale due to longer than anticipated drill times however the wells likly have longer laterals which hopefully will (should based on what they've seen so far in some of the pilots) yield greater reserves per well.

Odds & Ends

Analyst Watch: (EOG) goes from under to overweight at JP Morgan, (SWN) price target cut from $52 to $49 at FBR

25 Responses to “Tuesday – E&P Earnings Abound”

  1. 1
    zman Says:

    Stern Agee takes EOG to buy. It’s got to be the cost control. I’ll be looking long on as an early trade and also later in the day on any dip.

    Over at SWN, the analyst price target reduction is also probably due to cost control (maybe the slower drilling pace). I’d like to hear from them on the matter but if it dips I’ll strongly consider take a little early as that production beat and upped guidance is pretty strong.

  2. 2
    zman Says:

    Bought some June $45 SWN calls at $0.85.

  3. 3
    lawdymama Says:

    End of the world must be coming. TSO isn’t up 5% (at least so far).

  4. 4
    zman Says:

    No kidding – it’s been a buck a share per penny rise in RBOB…what gives?

    Took some May 75 EOG CALLS for $1.40 as per comments this morning.

    Analysts seem to be getting more concerned with cost control which is going to hurt SWN a bit here.

  5. 5
    zman Says:

    TSO – I get up for coffee and come back to see $1.70 down replaced by $0.17 down. unreal.

  6. 6
    zman Says:

    RAIL getting whaled on. Beat top line, missed EPS by a nickel @ $1.80. Backlog remains huge but near rail car orders were off.

  7. 7
    zman Says:

    FBR reiterates it’s buy on SWN – just lowered price target. So I guess the comment is “buy but buy less”?!

  8. 8
    zman Says:

    EOG up $3+ and climbing.

  9. 9
    zman Says:

    Looking at buying some CHK for earnings. If they liked EOG’s cost control, they’ll probably love CHK’s.

  10. 10
    zman Says:

    Hey Bill F – if you’re out there, any thoughts on the tankers. UBS chopped NAT today while TK is moving on to new highs?

  11. 11
    zman Says:

    TSO down, VLO up = happy zman.

    EOG up big, MON getting smacked

    SWN and NFX off a couple dimes each.

    Trying to get some CHK but now joy so far

  12. 12
    Big H Says:

    I sold my TSO May 120 p’s for 4.6/4.7 this morning- Glad To!

  13. 13
    zman Says:

    Nice Big H! I’m hoping my lower strikes begin to come back into play. TSO off $2 now with them announcing a 2 for 1.

  14. 14
    kmmink Says:

    Random question – where were you finding the HDD data when you were posting it?

  15. 15
    zman Says:

    long jun 35 chk calls for $0.85

  16. 16
    zman Says:

    here:

    http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/cdus/degree_days/

    but the site appears to be down at present

  17. 17
    zman Says:

    Nicky – here’s oddball guess. Stories out that crops are finally getting planted after a rainy spring season kept farmers out of their fields.

  18. 18
    Kevin Says:

    Z, Feels like yesterday was just some profit taking/tree shaking and contract rollover weakness in the oil patch. You know me,..I’m a refiner guy and holding VLO for tomorrow. What do you think inventory report action will be tomorrow? I’m looking for a 1.5 million draw in gasoline and a ref utilization of 89.5%. Overall I think tomorrow will be an up day for refiners,..You?

  19. 19
    zman Says:

    Kevin I agree although I wouldn’t be surprised to see a bigger draw on gaso and lower more flattish utilization with last week’s levels.

    I’m long a good bit of VLO at this point and and still short (too much?)TSO. (and HOC and WNR).

    Go CHK go. Ditto EOG

  20. 20
    zman Says:

    Just saw out of half of EOG calls at $2.40

  21. 21
    lawdymama Says:

    Z – I’m with you on the TSO down, VLO up.

  22. 22
    zman Says:

    TSO now sells YoYo’s . A good trader could have been in and out of that a half dozen times today.

    On the plus side (at least for shorts) I don’t remember this many failed rallies in a heady energy stock in quite some time.

  23. 23
    zman Says:

    Thanks Nicki – I’m thinking we’ll see a bigger draw than he is and that we’ll get a build in crude. I agree with the higher imports thoughts but from week to week they can vary many tanker loads in either direction so while it makes sense, what he’s saying, imports could just as easily peeol back by 100 kbpd.

    What site was it if you don’t mind me asking.

  24. 24
    zman Says:

    Everybody and there brother raised price targets on CCJ today.

  25. 25
    T-Tupp Says:

    it looks like someone put through ~10,000 contract block on OTM June VLO Calls today…. it was posted on the most actives on CBOE’s website. i also spoke to a M.M. friend of mine in Chi-town who metioned some things about it to me lol.

    front month ATM an OTM activity seemed to be pretty average, but decent. looks like someone is assembling a position trade with what i said in the above paragraph.. wink wink.

    — I’m excited Z., i told you i doubled down yesteray before close right??

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