Monday Morning – Ho Hum Earnings Reaction So Far

News Flash: Oil Down A Buck: Oil seen falling this a.m. over the reopening of the LOOP and a forecast of warmer than normal weather this week and for November, two points of interest that were well known but went largely ignored last week.

— The stocks look to be in for a fairly weak opening with serval oil names off bto and the OIH off 1%. Expect the biggest hits, if this is indeed the start of a much anticipated pullback (see below) to come from HAL, SU, the tankers (FRO and OMM especially) and the drillers (GSF and PTEN in particular). XOM could play to the downside for $2-3 over the next week as well but its a long shot given the self supporting nature of the stock.

Last Week’s Performance: So, So. Most energy stocks rallied with oil (up 2.4%) through mid week until the falling oil (Thursday) and falling GDP (Friday) muted the gains.

Gas was down slightly on the week. Frankly I was shocked by the yawning reaction of gas to the much lower than expected storage injection last Thursday. It was like the tradersin unison said, “yup, that’s a squirrely number.” Although many analysts will undoubtedly predict a small injection or even a small draw I looking for a build in the 20-25 Bcf range this Thursday. True, last week saw some of the coolest weather of the season but barring further governmental adjustments, we should see larger numbers until the really cold weather hits. Next week’s number looks likely to get back into the 30 range.
The energy groups peaked mid week and fell off following oil and gas lower on Thursday. The rally of the last 3 weeks has been impressive but looks to be faltering:

XOI up 1.4% last week, up 5.1% in October.

XNG up 0.7% week, 6.3% October
OIH up 3.8% week, 3.7% October. – It was a big week for service on the back of HAL –> OIH now at 2 month highs.

Oil vs The Energy Groups, S&P500. In the last three months the only energy group to even remotely track the fall in oil has been service, which has probably been the least fundamentally affected. Looking at the year to date chart demonstrates the breakdown in correlation that occurred on Aug. 7th at around 9:30.

I’m looking for a snap back for the energy stocks (8-12% downside through November) after energy earnings season draws to a close this week and fund managers begin to ask the questions,

— “how can things get any better for the group unless commodity prices resume their advance?” and

— “won’t borrowing bases be reduced with inevitably lower PV10 values based on year end oil and gas prices” and

— “3.5 Tcf, isn’t that a lot?” and how about,

— “when will E&P company’s pressure the service guys to reduce costs”

Earnings/Performance Post Mortem: Just taking a quick look at the notable performances of stocks that have reported 3q results so far: (italics indicate my holdings-all puts- man have I been negative lately-you’ll see, just wait)

CHK 15% beat, stock up 2%, – outstanding quarter. Won’t touch on either side since I’m down on the group and you can’t find a better name in a better environment to go long. This replaces the EVG as my favorite gassy takeout.

XOM 11% beat, stock flat comment: a gagillion analysts follow this beast and they were too low by 11% – you guys are bagging. 16 buys, 6 holds – talk about group think.

SU 8% beat, stock down 1.7%. This remains my favorite way to short oil via stock puts. Given the stair-step growth profile, with absolutely no chance of upside to production estimates, no chance of any real surprise save a negative one, this tracks oil like shadow after earnings season is over.

HAL 7% beat, stock up 12% – if the dem’s take senate, look out below. Stories of overcharging and cover up are arriving almost daily but the stock is up on the KBR spinout. Note to HAL: you’re a great company but you can’t hide from the malfeasance of your subcontractors and subsidiaries.

Key Earnings This Week

GW 10/30 – benchmark land driller in the Ark-La-Tex, Rockies – if these guys say the wrong thing, “signs of slowing, anything like BHI’s comments, it spells big trouble for the drillers and the gassy stocks (APC, EOG, DVN, SWN).

EOG 10/31 – production growth guidance is key here. If no change then this will head lower short term. After CHK’s report last week, the bar is set pretty high.

VLO 10/31 –

HOC 11/1 (could get slapped pretty hard after recent run, especially if products start to creep back down at a faster rate than crude, which I think is overdue.

DVN 11/1 -needs production upside or another deep GOM discovery

PTEN 11/1 – ditto comments of GW