Today - Tuesday, January 27, 2015
- Few energy plays have held up as well of late as U.S. refiners such as Valero (NYSE:VLO), Tesoro (NYSE:TSO) and Marathon Petroleum (NYSE:MPC), and Barclays analysts see more strength ahead for the group.
- For a refiner the price of oil is an input, so cheaper oil cuts its costs, and U.S. refiners generally do better when the price difference between U.S. crude and international benchmarks is widening - and that’s exactly what Barclays believes will happen.
- Brent-LLS and Brent-WTI Cushing spreads have tightened significantly in recent weeks, but the firm thinks the differentials are unsustainable; storage capacity at Cushing and the Gulf coast will inhibit the ability to store excess barrels indefinitely, and the upcoming turnaround season should expedite the speed at which Cushing and Gulf coast inventory meets maximum storage capacity, eventually forcing differentials to re-widen and begin to reflect transportation costs.
- In conclusion, Barclays believes U.S. independent refiners will benefit from the re-widening of North American differentials in the coming months.
- The U.S. Senate is on track to pass legislation to approve the Keystone XL pipeline (NYSE:TRP) by the end of the week, Majority Leader Mitch McConnell says.
- Keystone legislation stalled yesterday as Democrats raised objections about the number of amendments they’ve been allowed to offer; Republicans say the Senate has voted on two dozen amendments, more than were voted on in all of 2014 under Democrat control.
- Republicans control the Senate 54-46, and because six Democrats have signed on as sponsors of the Keystone bill, party leaders expect to get the 60 votes needed to pass legislation despite failing yesterday in two procedural votes.
- Synergy Resources (NYSEMKT:SYRG) -3.6% AH after launching a public offering of $150M of its common stock, with an underwriters option to purchase up to an additional $22.5M of stock.
- SYRG says it will use the proceeds to help fund additional asset acquisitions in the Wattenberg Field which may become available, to pay down debt under its revolving credit facility and for corporate purposes, including working capital.
- The oil price decline is the most significant reason Caterpillar (NYSE:CAT) expects a 20% cut in its earnings this year, particularly for its energy and transportation unit which makes compressors, pumps and turbines for oil and natural-gas companies, and is a negative for CAT’s construction business in oil-producing regions, CEO Doug Oberhelman said in today's earnings call.
- A stronger dollar also is hurting sales and will hurt U.S. manufacturers, although CAT's global production footprint would help offset the impact, the CEO said.
- “We are hopeful the guidance is conservative enough to provide a base level expectation for 2015, but it was a surprise even against lower expectations,” says William Blair analyst Larry De Maria.
- If 2015 sales fall the company expects, it would be the first time since the Great Depression that CAT has experienced three consecutive years of falling revenues.
- Earlier: Caterpillar plunges on profit drop, lowered outlook
- Commodities trader Vitol and Italian energy company Eni (NYSE:E) receive final approval from Ghana's government to develop a $7B offshore oil and gas project, in the largest project backed by foreign investment in the country since gaining independence in the 1950s.
- The Offshore Cap Three Point project would produce 15 years worth of gas for Ghana’s domestic power stations as well as crude oil for sale on international markets.
- Vitol and Eni expect oil to start flowing from the project’s five fields in 2017, with gas production expected to start a year later.
- The decision to go ahead with the project comes as many oil and gas companies are looking to cut costs and reduce spending on big developments because of sharply lower oil prices.
- Rex Energy (NASDAQ:REXX) says its proved oil and natural gas reserves at year-end 2014 totaled 1.337T cfe, a 57% increase (~487B cfe) from total proved reserves reported at year-end 2013.
- Of the 1.3T cfe of total proved reserves, 37% was attributable to oil, condensate and natural gas liquids, with 63% attributable to natural gas.
- REXX says proved developed reserves at year-end 2014 totaled 586.7B cfe, up 65% Y/Y, and its PV-10 rose 80% to $1.2B from a year-earlier PV-10 of $668.7M.
- Western Refining Logistics (NYSE:WNRL) names Gary Dalke as interim CFO, succeeding Karen Davis, who will resign Feb. 2 and become CFO of Northern Tier Energy (NYSE:NTI).
- NTI CFO Dave Bonczek has elected to step down effective March 16.
- WNRL interim CFO Dalke is an executive VP at the company's general partner and will serve in both roles until a permanent replacement is named.
- Walter Energy (NYSE:WLT) +1.9% AH on news it is suspending its quarterly dividend to enhance financial flexibility in light of current metallurgical coal market conditions.
- WLT previously paid a quarterly dividend of $0.01/share.
- Fellow coal company Peabody Energy dropped 6.5% today after cutting its dividend to less than a penny a share.
- NF Energy Saving (NFEC +50.6%) soars on news it signed a contract with China's Gansu Coal to provide 23 sets of flow control equipment for a combined heating and power project.
- NFEC says the 3B yuan project will generate more than 38B kwh/year of power, replacing more than 180 units of small low-efficiency coal fired boilers.
- Marathon Oil (MRO -1.3%), Cobalt International Energy (CIE -0.3%) and RSP Permian (RSPP +0.8%) are downgraded to Neutral from Buy at UBS, as the firm cuts its 2015 Brent/WTI crude forecasts to a respective $52.50/bbl and $49/bbl, and lowers 2016 Brent/WTI crude estimates to $67.50 and $62.50.
- UBS also is cautious on several energy names with large free cash flow deficits, slowing growth profiles and rich relative valuations: COP, DVN, MUR, UPL, RRC, DNR, MHR.
- The firm's top Buys are APC, CHK and EOG.
- The Obama administration proposes opening up oil and gas exploration off the Atlantic coast from Virginia to Georgia, and will seek public comment on whether such a move is too environmentally sensitive.
- The Interior Department plan contemplates expanded drilling between 2017 and 2022, it would conduct one auction in the Atlantic and keep a 50-mile buffer from the shore.
- The plan comes as the administration also plans to limit oil and gas drilling in Alaska; Republicans don’t like the Alaska idea, and now the environmentalists don’t like the Atlantic proposal.
- ETFs: USO, OIL, UCO, SCO, BNO, DTO, DBO, UWTI, USL, DWTI, DNO, SZO, OLO, TWTI, OLEM
- Analysts say Energy Transfer Partners (ETP -1.4%) $11B deal to consolidate its Regency Energy Partners (NYSE:RGP) unit under one roof could be a harbinger of more M&A action to come for energy companies whose balance sheets are being strained by cheap crude oil prices.
- Pipelines, processing units and storage tanks have retained their value better than drilling acreage and equipment, prompting some producers to put their pipes up for sale to raise cash needed to prop up drilling operations and resulting in plenty of buying opportunities for companies seeking to expand their reach or fill in blank spots in their networks.
- Buckeye Partners (NYSE:BPL), NuStar Energy (NYSE:NS) and World Point Terminals (NYSE:WPT) are considered attractive candidates for large pipeline owners able to do deals now, some analysts say, because almost all of their cash flow comes from contracted fees that do not change with commodity prices.
- The value of new projects obtained by engineering and construction companies could drop 25%-30% in 2015 due to the sharp drop in oil prices, Deutsche Bank says as it downgrades two names in the group, Fluor (FLR -3.1%) and KBR (KBR -3.4%), to Hold from Buy.
- Many energy-related projects that had been boosting the results of E&C companies are no longer economically viable, and oil price volatility will make it difficult for companies to approve new projects even if they can generate acceptable returns at current oil prices, DB analyst Vishai Shah writes.
- Fluor and KBR have the greatest risk of reporting weaker than expected 2015 results, and their valuations are higher than average for the sector, Shah says; however, expectations are low for Chicago Bridge & Iron (CBI -1.7%), whose results could benefit from an acceleration in gas-fired power plant projects this year, the analyst says in maintaining a Buy rating on CBI.
- U.S. exports of condensate have been given an important boost by Enterprise Products Partners (NYSE:EPD) agreements for contracts with at least two major trading companies to sell the light crude, according to a Reuters report.
- EPD has contracts with Mitsubishi's Petro-Diamond Singapore oil trading arm and independent oil trader Vitol for 1.2M bbl/month of U.S. condensate in 2015, trade sources say, which should give it a head start before other companies win approval to export condensate produced from shale operations.
- Royal Dutch Shell (RDS.A, RDS.B) also has approvals to export U.S. light crudes, while ConocoPhillips (NYSE:COP) is seeking a license and BHP Billiton (NYSE:BHP) also has sold at least two cargoes.
- Peabody Energy's (BTU -6.7%) move to slash its quarterly dividend to less than a penny a share is helping push coal company stocks (NYSEARCA:KOL) lower: WLT -1.6%, ACI -1%, CNX -1.8%, CLD -2%, WLB -5.4%, ARLP -1.2%.
- Cowen analysts see the move as "a prudent move amid uncertain coal markets," and Sterne Agee says the dividend cut will save BTU $100M in annual cash payments.
- Citigroup's Brian Hu maintains a Buy rating on BTU, saying that although management expects U.S. thermal coal demand to fall by 50M-60M tons in 2015, "BTU is better insulated due to their heavily contracted position and Y/Y improvement in Southern PRB rail performance.”
- NextEra Energy's (NEE +0.6%) Q4 earnings missed expectations in part due to fueling outages in its nuclear unit but revenue surged 29% and beat estimates on stronger than expected demand for new renewable energy projects.
- Q4 earnings at Florida Power & Light rose 15% Y/Y to $286M, driven by more customer accounts, while income at the NextEra Energy Resources business rose more than sevenfold to $614M.
- Reafirms FY 2015 EPS guidance of $5.40-$5.70 vs. $5.64 analyst consensus estimate.
- CEO Jim Robo says NEE hopes to use the recent deal to acquire most of Hawaiian Electric Industries for ~$2.6B to leverage its position in other parts of North America, adding that he is optimistic due to high demand for new projects.
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