eNergy Stocks: Sector rebounds to close narrowly mixed

by Jim Jelter
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Chart of $XOI

Oil and gas stocks closed mixed Tuesday, rallying back from early-session lows as the broader market pared its own losses and crude-oil prices rebounded to $62 a barrel.

($XOI :1,298.06, +1.49, +0.1% ) eked out a 0.1% rise to 1,298 points, led by a 1.6% gain for Valero Energy Corp. (VLO : 73.66, +1.18, +1.6% ) to $73.66 a share. Crude-oil prices provided much of the support, advancing 79 cents to finish at $62.26 a barrel as more violence rocked the oil fields of Nigeria's Niger Delta region, raising new concerns over supplies from the OPEC nation. See Futures Movers.

While cutting most of their losses, the oil services and natural gas companies nevertheless continued to feel the pinch from weaker gas prices, disappointing earnings from El Paso Corp., and a valuation downgrade of drilling contractor Rowan Cos. Inc.

The Amex Natural Gas Index ($XNG : 498.03, -2.95, -0.6% ) finished the day with a 0.6% loss at 498 points, up from the day's low of 492, while the Philadelphia Oil Service Index ($OSX : 238.69, -0.32, -0.1% ) finished 0.1% lower at 238.7 points, also bouncing back from early lows.

El Paso Corp. (EP :14.95, -0.62, -4.0% ) reported before the bell first-quarter net income nearly doubled to $629 million, or 89 cents a share, from $356 million, or 49 cents a share, a year ago. The results include a gain on the sale of ANR Pipeline Co. and a charge for debt repurchases.

But El Paso's earnings from continuing operations came in at 18 cents a share, well below the 26 cents a share analysts polled by Thomson Financial had been looking for. The report triggered a 4% sell-off of the stock to $14.95, making it the biggest percentage decliner in the Amex natural gas group. See full story.

Pressure on the oil services group was linked in part to a Wachovia downgrade of Rowan Cos. Inc. (RDC :37.32, -1.37, -3.5% ) to market perform from outperform, citing limited upside potential after a strong run higher in its share price. Rowan shares ended the session with a 3.5% loss at $37.32.

In the oil group, U.S.-traded shares of France's Total SA (TOT :74.59, -0.99, -1.3% ) led percentage decliners, down 1.3% to $74.59, while U.S. giants Exxon Mobil Corp. (XOM : 81.38, +0.55, +0.7% ) gained 0.7% to $81.38 and Chevron Corp. (CVX : 80.05, +0.47, +0.6% ) rose 0.6% to $80.05.

"With earnings winding down, shoulder period macro/industry data points over the next couple of months [will be] important with stocks at these levels," Dan Pickering, analyst at Pickering Energy said in a pre-market note.

Two of the data points will hit the market Wednesday, when the Energy Information Administration and American Petroleum Institute provide their weekly U.S. fuel supply updates and, later in the day, the Federal Reserve decides what to do with interest rates. Most investors are betting the Fed will leave rates unchanged.

PetroChina Reports Record Natural Gas Production
Kurt Wulff (McDep Associates)
In April 16, buy-recommended PetroChina Company Ltd. (PTR) reported a 14% gain over the previous year in first quarter 2007 natural gas production and a 1% gain in oil for a new quarterly volume record.

An adjusted reserve life index of 24 years for natural gas points to continued sharp volume growth. It seems to us that a dam is about to burst in the government’s recognition of natural gas pricing reality. Apparently not even international pariah, Iran, wants to sell gas to China at the low price PetroChina receives.

The clean fuel provides only 5% of the energy consumed by the world’s largest coal polluting country. Meanwhile management apparently feels good about oil exploration judging from Vice Chairman Jiang Jemin’s description last month of a discovery in Bohai Bay as “very rich,” according to Bloomberg. Awaiting further disclosures, press reports suggest the new field eventually could contribute 200,000 barrels daily, or 9% of current oil volume. Below estimated net present value of $140 a share, PTR stock may be timely as it trades on its 200-day average price and at the second lowest ratio to 60 day average among our recommendations.

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