Thursday Morning-Inventories, To Draw Or Not To Draw?

Gas Inventory Day. Oooooh, Aaaahhhh. We could get a pull given the cold weather but I still doubt it. Last week’s number was unbelievable low. Here’s my take on that. If we get a pull (which some analysts are now forecasting) gas will trade briefly back over $8 which might be a good thing as it could flush out some hedge funds who could made their bet and have a quick, sizable gain. I’m still going with 20 to 25 but the street ranges from a draw of 29 to a build of 35 so simply stated, a draw will boost prices, a build will tear them down.

Oil Notes. I forgot to add to last night’s comments that refinery utilization inched up as the maintenance season begins to wind down. Although gasoline rocked on the bigger than expected draw the effect will be fleeting as refineries gear production back up.

— Note to EIA: you really should proof read your releases, while the summary paragraph shows refinery utilization increasing, the table below shows it falling.

— Shell is restarting 47,000 bopd of villager halted production. No word on BPs lifeboat inhibited rates in Norway.
SZE Gets Coastguard Approval for Florida LNG Receiving Facility. See story. SZE has the necessary size ($75 billion TEV) and know how 1) they are building a new facility (Neptune to open 2009) to serve the Boston market, and 2) they currently operate Everett, MA LNG facility and another in Belgium, and 3) operates a broad portfolio of power generation and other energy assets. Moreover, their Florida facility is a choice location given the hundreds of Tcf discovered on and around Trinidad. This is not an add for them as much its a continuing critique over the valuation and chances of success for LNG (the company). See my past article on LNG here.

Dominion Punting E&P Arm. Five years ago Dominion, another broad portfolio energy player, bought Louis Dreyfus Natural Gas (LD) (of which Julia from Seinfeld is an heir so all that comedy is just a hobby) for $2.3 billion. And now they’re selling them.
At the time of purchase LD had about 2 Tcfe of proved and 2 Tcfe of unproved, mostly gassy reserves. D had about 3 Tcf so the 5.5 Tcfe of proved reserves they’re selling now is Ok (they’ve been developing and selling those reserves all this time plus they’re keeping about 1 Tcf of low risk reserves for themselves in Appalachia).

• What’ll be interesting to see is the pricing the underwriters put on those reserves. Either way remember the axiom, “Buy Low, Sell HIGH”. Dominion made that purchase when gas was trading around $3 per Mcf. I wonder why they don’t just roll it back out as a public company. Maybe because this way they can wash their hands of the assets whereas there is no way to spin out 100% of the deal and still get it done. Alarm bells are ringing.

• By the way, these guys own and operate a large network of natural gas pipelines and storage facilities so they know a little bit about the commodity. I’m not saying anything about a trade on D here, just finding more evidence that gas is over priced.

CNQ Takes The Axes To Canadian Drilling Activity. Will drill only 423 natural gas wells in 2007, down 43% from 2006. From Wednesday’s conference call, “We can step back somewhat from this overheated market.” In August, CNQ said it was scaling back the number of gas wells it would drill in the 2H06 by about half, the result of lower natural gas prices and a desire to expand its crude drilling program. However, now it only plans less than a 2% increase in North American crude wells in 2007. Comment: Service guys and drillers should be getting nervous.

Stocks of Interest:

SFY Continues To Roll. Announces a crushing beat ($1.68 vs $1.33 est), ups production guidance range, and shows good cost control with per unit LOE diving 24% (which is unheard of these days). This is pretty oily but they continue to ring up exploration and exploitation success in Louisiana. Their international stuff in New Zealand has not done so great of late – hopefully they’ll sell that but I doubt it. If oil gets whacked over the next few months, SFY will be one to watch for a rebound.

TSO – big beat but these guys are in “what have you done for me lately land” .

I’ll put out an earnings addendum later today with more comments. Gotta bop.

Analyst Watch: Funny thing, both CNQ and D caught downgrades. this morning. I keep telling these companies that if they cut production growth the analysts think that’s bad and punish them but they just don’t listen. BHI and PXD received upgrades.