Thursday Morning – E-Day

Warning: Oil and Gas Stocks Will Do Whatever XOM Does Today. Early Strong Advance Likely.

O&G Indications Mixed Pre Open. Oil looks flat to off slightly before the open but natural gas is  advancing with purpose, up $0.14 to $8.47 on the Decembers.  It’s gas inventory day and I’m expecting an injection of 30-35 Bcf. Still haven’t seen a consensus number but XOM overrides anything but a giant (55>) or tiny (<30) number.

The Louisiana Offshore Port Was Closed For 3 Days Last Week. Is it any wonder that imports fell in yesterday’s report? Someone asked if they parked the tankers. Well apparently they did. Nice of our government to omit this tidbit in its commentary. Now, I’m not going to go all Mel Gibson on you (conspiracy theory, not the raving luny on the side road) but some will surmise that the administration has gotten what it wanted out of the Saudis (lower oil and therefore lower prices at the pump in time for Nov 2) and now we’re reversing course to stabilize oil prices (refilling the SPR when we said we wouldn’t until after winter – Bodman never returned my emailed question on that – and now shutting down the biggest US oil import facility for half a week). I don’t believe any of that but some might.

Exxon Day: XOM Reports Second Biggest Quarter Ever ($1.77 vs $1.59 est.)

— Revenue of $99.59B (don’t you know missing that $100B number peeved them off)

— Repurchased $8.5B during quarter – now we know why it won’t fall with oil prices. With an average trading volume of 20 million shares per day over the quarter and assuming they paid an average of $65 per share, XOM would have accounted for 7% of daily trading volume. That’s a lot of firepower.

— Results were attributed to higher commodity prices, better margins at refining and chemical segments and that giant share repurchase.

— Production was down 3.7% sequentially but up 7.2% YoY.

— XOM is setting new all time highs in pre market. I’ll have more later in comments when I get the full press release.

A Few Words On SU And Their 3Q Bottom Line Beat. ($1.48C vs $1.21US Exp) Converted this equates to 1.31US (a $0.10 beat). 2Q had better pricing and better production, eps were $1.64C or 1.46 US.

–Slightly lower than expected production due to unplanned maintenance. Production of combined synthetic and bitumen productions was down from 2Q levels: 3Q at 243,000 pd vs 2Q at 267,000. Probably won’t come as too much of shock given the maintenance was announced so analysts likely to forgive them.

–Natural gas production, a key cost component, remained flat with the prior quarter and relatively so with year ago levels.

–Fourth quarter expected to be back on plan with production inching towards capacity,

–4Q Operating costs are seen backing off a bit on a per unit basis with anticipated higher volumes. For the full year, higher gas costs have worked to bump this up and the full year number is now 5% over plan at $20.50-21C (mid point is up $1.50C). Here’s where I see a problem: 3Q averaged $23.70C vs $18.30 2Q (a 30% jump in unit costs due to 9% lower volumes) This bears watching closely.

–Crude realizations are expected to fall a bit more than originally planned. Now WTI less $6-7C.

–Long term plans remain on schedule for 2008 and 2010+ expansions. Indicated costs of expansion likely to increase from previous budgets (like every other oil sands project you’ve ever heard of).

–Summary: decent quarter, guidance shows op costs and cap costs are creeping up a bit, and realizations are down some with prices. Production is still subject to operational difficulties of the industry.

— SU has the best correlation to oil of just about any stock around making it a good proxy for us until the USO gets options.

Analyst Watch:

Bear upgrades OMM – what are they thinking? They downgraded the stock August 17 at a price not $0.30 different than the current one. True, if you sold, you were spare a whopping $1 in the great oil decline of 2006 but you got it back if you held through yesterday. Nice job guys. Way to gen those commissions.

AG Edwards and UBS downgrade MUR

FBR whacks its NBR target from $54 to $45