RJ EnergyGroup, Tuesday, January 30, 2007 8:09AM
Daily Update
Energy Markets: Oil and natural gas prices retreated modestly yesterday, as traders reel in profits following respective gains of 7% and 4% over the prior week. Moderation in the 8-14 day weather outlook, while still showing below-normal temperatures in the Northeastern U.S. markets, may have lent a hand in yesterday's slide. A closer eye will be placed on crude imports to the U.S. beginning in February, as speculation continues to surround OPEC's compliance with its second supply cut announcement. Allusions to a continued tightening of the oil supply can be gained from a recent announcement by a senior Saudi official who recently advised customers of the upcoming 158,000 Bbl/d output cut, which represents over 30% of the 500,000 Bbl/d production cut agreed upon by OPEC.
On the natural gas front, the front month (February) contract rolled off at $6.92/Mcf, a marked improvement over January's price of $5.84/Mcf. It continues to show strong support this morning (although cold weather is forecast to retreat from the West and South), as the 8-14 day outlook shows reemerging sub-temperatures concentrated in the Northeast. We continue to believe that gas storage at the conclusion of this winter will come in below consensus expectations, providing further support for natural gas prices.
EV Energy Partners (EVEP/$23.25/Strong Buy): Updated guidance for full-year 2007 exceeds our estimates. The company provided production guidance for 2007 of 5,932-6,342 Bcfe total volumes. The midpoint of this forecast range is 11% higher than our estimate, which is very good news. For 2007, the company plans to spend $6.5-7.0 million for drilling and development versus our prior estimate of ~$10.5 million. Bottom line: An excellent way to start off the year! All in, our updated model shows a double-digit forward 12-month organic growth rate (pro forma acquisitions) and a compelling cash flow structure.
Parallel Petroleum (PLLL/$18.49): Upgrading from Outperform to Strong Buy. This morning, we upgraded Parallel following the company's excellent reserve data reported yesterday. Given this bullish reserve report, our proved NAV/share rises from $14.48 to $18.28, an increase of 26%. Despite yesterday's gain in the shares, there is now virtually no premium in the stock for unbooked reserve potential, a compelling value proposition within the context of any resource play producer. Based on this fact, and also recognizing the organic growth ahead, including our unbooked resource estimate of 608 Bcfe for Barnett and Wolfcamp combined (discussed in our upgrade comment), we are upgrading Parallel from Outperform to Strong Buy. |
