As expected, it’s been a busy week for earnings and news from the energy patch. In last week’s issue, I indicated that I see this quarter’s earnings news as a key upside catalyst for the energy patch. During the past few issues, I’ve been boosting exposure in the model Portfolios to some of my favorite groups, including oil services and coal, in anticipation of such a move.

Given what I’m hearing from various energy companies, I’m now even more confident we’re seeing an important turn to the upside. With the height of earnings season now upon us, the news is coming in fast and furious; I still have quite a bit more work to do to keep on top of it all.

I will, of course, be offering a more detailed rundown of my take on various groups and recent news in the next issue of The Energy Strategist. For now, I offer some highlights and bullet points to consider.

Nuclear Power/Uranium

The key news on the uranium front has nothing to do with earnings. Rather, last weekend, uranium mining giant Cameco (NYSE: CCJ) announced that it was experiencing uncontrollable water inflow into one of its key new mine projects–Cigar Lake in Canada. The company hosted a conference call on the problem Monday morning.

Basically, a rock slide in one of the underground shafts at the mine resulted in water flooding the shaft. Cameco workers tried to close two bulkhead doors to isolate the inflow, but one of those doors didn’t seal properly. The water, under tremendous geological pressure at a depth of nearly 500 meters (1,500 feet), rushed in at the rate of 1,500 cubic meters per hour.

This was way too fast to be controlled by electric pumps installed in the shaft. In the end, Cameco was forced to close other bulkhead doors and allow a large section of the mine shaft to flood entirely. Cameco now believes it’s stemmed the inflow of water, and the current bulkheads are designed to handle the pressure effectively.

But the damage is done. Given the flood, Cameco’s management estimates the Cigar Lake project will be delayed by at least one year. Scheduled to start producing uranium in early 2008, it now looks like early to mid-2009 for this mine.

Keep in mind that this is one of the finest uranium reserves and projects on the planet in terms of reserves and potential production. It’s also only one of a handful of projects scheduled to begin uranium production between now and the end of this decade.

Cameco has signed several supply contracts with utilities that involve selling production from Cigar Lake. This is a problem for Cameco in that earnings under those contracts will be deferred. But it’s not a terminal issue for the uranium giant; Cameco has added clauses to its contracts that allow for mining-related production delays.

In addition, Cameco has large inventories (as much as 18 million pounds) of uranium on hand that can be used to back up contracts in the short run. For now, I’m recommending you hold on to Cameco pending more details as to how long it will take to fix the Cigar Lake mine. The company remains the blue chip uranium play.

But the Cigar Lake flood has repercussions that go far beyond Cameco’s near-term earnings picture. This delay is threatening a uranium supply squeeze of epic proportions. This is unquestionably bullish news for some of our other uranium-related recommendations.

As I highlighted in the July 26, 2006 issue of TES, The Nuclear Option, demand for uranium exceeds the supply of uranium mined each year. That’s only getting worse as new nuclear plants are built and brought online in the emerging markets, Europe and, eventually, the US.

Meanwhile, existing utilities are burning through their uranium inventories. They’re now looking to secure supply for the post-2008 period.

Unfortunately for the utes, one of the most obvious sources of new uranium was Cigar Lake; that uranium supply is now firmly off the table for at least another year. The big question is where they’ll get the uranium. They may be able to buy some from the spot market, but very little uranium actually changes hands on the spot market; it’s an illiquid market.

The potential for a surge of new demand into uranium spot markets sent prices soaring on the Cameco news. Now, spot uranium prices are in the mid- to upper $50s per pound, up from less than $40 early in 2006.

The most direct play on that is Uranium Participation Corp (TSX: U), a company that simply buys and stores uranium in inventory. With spot prices soaring, that uranium is now more valuable. Within the next three years, I expect that uranium prices will exceed $100 per pound.

Then, of course, investors should consider other uranium producers that may be able to bring more supply of the yellow metal to the market and ease the supple squeeze. Cameco’s news is exactly why most of the smaller junior uranium miners outlined in the July 26 issue are up on the order of 15 to 25 percent this week. All of the stocks in the uranium field bet are buys; the Cameco news is very bullish for the junior miners.

Oilfield Services

The key company to watch here is the world’s largest oil services concern, Wildcatters Portfolio recommendation Schlumberger (NYSE: SLB). I’ll look at this company’s report in greater depth in the next issue; there are several details that merit a closer review.

For now, suffice it to say that Schlumberger’s earnings were solid across the board. Once again, Schlumberger stated that the North American gas drilling market is the most vulnerable during the next few quarters. To date, however, Schlumberger has seen no effect from the weakening environment and no pressure on prices. Only a few marginal producers have canceled contracts.

Given the across-the-board strength in Schlumberger’s business, I’m re-iterating my buy recommendation in the stock. In the October 5 issue of TES, Review And Preview, I recommended taking a half-sized position in Schlumberger ahead of earnings with the intention of adding the remainder after the quarterly release was out. If you followed that advice, it’s time to pull the trigger on the second half of that position.

In the past two issues, I’ve also recommended that all subscribers take partial gains and/or lower stops in my two short recommendations: Patterson-UTI (NSDQ: PTEN) and BJ Services (NYSE: BJS). Both stocks have now touched my recommended lowered stops, generating gains of 8.5 and 9.6 percent, respectively.

We were able to hang on to profits by adjusting stops. If you took off part of your position, your profits are slightly higher. If you’re not out of Patterson-UTI and BJ Services, get out now as Schlumberger’s release suggests both stocks will report decent earnings.

Transports–Railroads, Airlines And Barges

I highlighted this sector at great length in the past two issues of TES; I won’t belabor the point here. Union Pacific (NYSE: UNP), CSX and Burlington Northern Santa Fe have indicated continued strength across all their major product categories with the possible exception of lumber. Rates are on the rise, and rail transport remains a key bottleneck even as the economy slows. Union Pacific remains a buy.

American Commercial Lines (NSDQ: ACLI) once again upped its outlook for the year and has shot up to a new all-time high. The stock is a little overextended near term, and we’re up about 26 percent on this recommendation. I’m cutting American Commercial to a hold for now.

Finally, the airlines pulled back after a nice run earlier this month. Rising oil prices hit the group, but there hasn’t been much trading volume on the decline in stocks such as Gushers recommendation UAL Corp (NSDQ: UAUA). I see the selling as symptomatic of profit-taking rather than any fundamental concerns. Keep buying UAL for a trade.

Coal

The big news out of the coal group is that Wildcatters Portfolio holding Peabody Energy (NYSE: BTU) has decided to delay production from its huge School Creek Mine. This is bullish because School Creek was a major mine; all that production is now deferred. This also indicates the major coal miners are willing to adjust their production to prevent overproduction and a glut of coal.

Management also paid considerable attention to the concept of “peak” coal in the eastern US. The idea is that eastern coalmines have little hope of increasing production; the post-May decline in coal prices has also rendered many smaller producers unprofitable.

This puts the onus on cheap western mines to fill the gap. All this is bullish for Peabody. If you took my advice and bought a one-half position in Peabody, add the second half now.