Seeking Alpha
  • Sunday, December 21, 2014

  • 12:42 PM
    • Blaming the fall in oil prices on speculators and the lack of cooperation from non-OPEC producers, Saudi Arabia has announced that it would not cut output even if non-OPEC nations did so.
    • "If they want to cut production they are welcome: We are not going to cut, certainly Saudi Arabia is not going to cut," says Saudi Oil Minister Ali al-Naimi.
    • His remarks at a conference in Abu Dhabi were echoed by some other Arab oil ministers, including UAE Oil Minister Suhail Bin Mohammed al-Mazroui, who urged all of the world's producers to quickly stabilize prices by not raising their oil output next year.
  • Saturday, December 20, 2014

  • 1:34 PM
    • These five oil and gas producers have among the highest net debt-to-capital ratios in the industry, writes Avi Salzman, which could be an issue if oil prices stay at these levels:
    • Ultra Petroleum (NYSE:UPL) at 115%, EXCO Resources (NYSE:XCO) at 90.3%, Halcon Resources (NYSE:HK) at 68.7%, W&T Offshore (NYSE:WTI) at 68.1%, Energy XXI (NASDAQ:EXXI) at 65.2%.
    • Previously: Barron's: Five oils to buy now (Dec. 20, 2014)
  • 1:29 PM
    • The super majors are probably the first place to look when oil prices fall, writes Avi Salzman, as their stocks tend to slide less drastically than smaller players, and maintenance of dividends is a priority for management. Favorites: Shell (RDS.A, RDS.B) and Chevron (NYSE:CVX).
    • While smaller producers appear risky, Occidental (NYSE:OXY) came into the price plunge well-positioned with one of the industry's cleanest balance sheets.
    • EOG Resources (NYSE:EOG) could be the pick among shale drillers, says Salzman, as it's chosen drilling spots carefully and its break-even price is among the lowest in the industry. "[The] best management team in Houston," says one fund manager.
    • Oil service stocks look especially vulnerable with capex budgets being cut, but Schlumberger (NYSE:SLB) "should have protection in the downturn," writes Salzman, noting the company repurchased 1% of the float in Q3 and at 1.8% yields more than (soon to-be-merged) Halliburton (NYSE:HAL) and Baker Hughes (NYSE:BHI).
    • See also: Barron's: Five oils to be wary of (Dec. 20, 2014)
  • 10:20 AM
    • With crude oil prices near five-year lows, some analysts say gas stations may be the best way to play the energy sector right now, with CST Brands (NYSE:CST), Murphy USA (NYSE:MUSA) and Marathon Petroleum (NYSE:MPC) as pure plays worth watching.
    • Gasoline retailers enjoy their largest profit margins in falling price environments such as today, says Again Capital's John Kilduff.
    • The gas station trend is clearly seen with refinery Valero's (NYSE:VLO) 2013 spinoff of its retail CST Brands, which operates 1,900 gas stations in North America and whose stock has easily outperformed VLO in recent months; Gabelli last week increased its 2014 EPS estimate on CST because of lower oil prices.
    • MUSA and MPC, also created as gas station spinoffs from refineries, have outperformed their parent companies as well.
    • Tesoro (NYSE:TSO) said its retail segment enjoyed record performance in the most recent quarter, while big box stores such as Costco (NASDAQ:COST) that have gas stations connected to their stores also noted the benefit of lower oil prices in their earnings reports.
  • 8:25 AM
    • The mothballed refinery on St. Croix will remain closed after the Virgin Islands legislature yesterday rejected a proposed agreement to sell and reopen the Hovensa refinery.
    • A local company reached an agreement earlier this fall to buy Hovensa, a joint venture between Hess (NYSE:HES) and Venezuela's PdVSA, but closing the deal hinged on winning government approval.
    • Legislators worried about the agreement's provisions releasing Hovensa from all liability upon the sale, and that the purchaser would be able to raise the $1B-plus needed to restart the refinery.
    | Comment!
  • Friday, December 19, 2014

  • 6:23 PM
    • The EPA released new rules for the disposal of coal ash in the first U.S. guidelines for dealing with the waste generated by burning coal, but the rules are not as stringent as environmentalists had wanted.
    • The rules require power companies to close ponds containing ash slurry if they are structurally unsound or have contaminated groundwater and are not lined with materials that prevent leaks; some of the 150-plus coal ash disposal sites that have contaminated nearby groundwater may be forced to shut down.
    • However, the rules do not classify coal ash as a hazardous waste, which would have added tougher handling requirements and higher costs; the EPA will leave it up to state regulators to ensure that companies meet the new requirements.
    | 1 Comment
  • 5:39 PM
    • More on today's Goldman Sachs downgrade of Seadrill (NYSE:SDRL) to Sell: The firm believes SDRL still faces significant balance sheet risk - even after cutting its dividend - due to high financing requirements for 2015-16 and beyond, as well as limited refinancing channels with the possibility of a higher cost of debt.
    • Goldman says Brent oil at US$70/bbl could leave SDRL in breach of its debt covenant in 2016, which could trigger an equity issue.
    • SDRL recovered from a big early deficit to finish +1.9%, although most other offshore drilling contractors enjoyed much bigger gains.
  • 5:25 PM
    • Transocean (NYSE:RIG) shares finished sharply higher today (+7.9%), but it’s hard to ignore the largely negative December fleet status report that came out late yesterday.
    • In lowering his stock price target to $17 from $20, Cowen analyst J.B. Lowe said RIG secured one attractive contract this month, not enough to fill much needed ultra-deepwater floater availability; while RIG was able to put two idle floaters back to work, it had four additional rigs go idle, including one where the customer canceled the contract.
    • Lowe believes falling oil prices will put increased strain on dayrates and utilization during 2015.
    • Most offshore drilling service contractors racked up strong gains today as crude oil prices rebounded: NE +9.5%, ESV +9.5%, RDC +5.9%, DO +0.5%, ATW +7.1%, PACD +14%.
  • 4:54 PM
    • Pres. Obama again pours cold water on the alleged economic benefits of the Keystone XL (NYSE:TRP) oil pipeline, telling reporters today that the project is "not going to be a huge benefit to U.S. consumers. It’s not even going to be a nominal benefit for U.S. consumers.”
    • Construction of the pipeline would create a "couple thousand” jobs, but there are better ways to create long-term, paying jobs for American workers by investing in infrastructure, Obama says.
    • The remarks are sure to increase speculation that the president eventually will kill the project.
  • 3:57 PM
    • OGE Energy (OGE -0.5%) is downgraded to Hold from Buy with a $38 price target, reduced from $44, at Wunderlich, based on the organic growth uncertainty for the company's interest in Enable Midstream Partners (NYSE:ENBL) created by the drop in oil prices.
    • However, the firm remains fond of the OGE story and believes there will be an opportunity to revisit its rating in 2015, with greater clarity on commodity prices and associated infrastructure opportunities for ENBL; utility operations are well positioned for growth and have increasing capital spending fueled by environmental retrofits for coal plants.
    | Comment!
  • 3:33 PM
    • U.S. energy producers continued to idle rigs for a second straight week, as the number of rigs searching and drilling for oil and gas across the U.S. fell by 18 this week to 1,875, according to the latest weekly data from Baker Hughes (NYSE:BHI).
    • The rig count has fallen for the past two weeks, but a serious cutback in drilling remains in its early stages, as the count is still 107 higher than last year’s count at this date of 1,768.
    • According to estimates by Raymond James and Wunderlich Securities, rig counts may have to fall by more than as 500 before supply and demand in the oil market reach an equilibrium.
  • 2:27 PM
    • U.S. coal companies will no longer be able to settle royalties at low domestic prices when they make lucrative sales to Asia, according to a new proposal from the Interior Department.
    • The reforms would update rules on how energy companies settle their royalty payments on coal, oil and gas pulled from federal lands, but the changes to the coal program may have the biggest impact.
    • Arch Coal (ACI +8.2%), Peabody Energy (BTU +4.2%) and Cloud Peak Energy (CLD +1.7%) are among the leaders in mining coal from federal land in the U.S. west.
    | Comment!
  • 12:56 PM
    • The Delaware Supreme Court overturns a lower court ruling that had halted a deal by C&J Energy Services (CJES +0.7%) and Nabors Industries (NBR +6.1%), saying there was not enough evidence showing the C&J board had short-changed its shareholders.
    • A lower court last month held up C&J’s merger with a Nabors unit, finding C&J’s board did not adequately shop the company; the situation was unusual in part because C&J's board and management would keep control, while the new entity is to be incorporated in NBR’s home of Bermuda and 53% controlled by NBR.
    | Comment!
  • 12:38 PM
    • Teekay Tankers (TNK -14.1%) is sharply lower after yesterday's move to launch a 20M-share public offering priced at $4.80/share and a subsequent downgrade to Neutral from Buy at UBS.
    • The firm notes that TNK has far outperformed tanker peers in the last three months, and believes the company has levered itself to a strong tanker spot market at the right time, probably accounting for much of the share price performance.
    • TNK's decision to double down on spot exposure in the midsize market proved wise, the firm says, thinking the share price has received full credit for the move.
  • 11:55 AM
    • Another casualty of oil’s collapse: The Italian government's plans to make a dent in the country's national debt by selling ~4.5% of oil and gas company Eni (E +0.7%) and Italian utility Enel (OTCPK:ENLAY).
    • The government has never officially taken the sale off the table, but with Brent crude down by half since June and Eni shares about a third lower, the sale has become unlikely, at least in the short term.
    • The sale of part of the government’s 30% holding in Eni was considered a key part of a program to raise ~€11B from privatizations this year and in each of the next two years in a bid to reduce Italy’s national debt, the EU's second highest based on a percentage of GDP.
    | Comment!
  • 11:44 AM
    • Transocean (RIG +4.6%) discloses that it plans to scrap seven of its older, lower-quality deepwater and midwater vessels, and adds that it may not be finished getting rid of parts of its fleet, even as oil prices and demand for offshore rigs have fallen.
    • RIG says it expects to take a related $100M-$140M charge in Q4.
    • RIG's decision to put the rigs up for sale comes after a string of vessel retirements and a $2.76B writedown of the company’s asset value in November.
    • Most offshore drilling service contractors are higher: ESV +5.1%, RDC +1.7%, DO +0.8%, ATW +3.1%, PACD +8.4%, but SDRL -4.3%.
  • 11:20 AM
    • Brazilian authorities likely will issue indictments against a third former Petrobras (PBR +1.2%) executive and several high-ranking local politicians, WSJ reports.
    • The timing of the indictments is unclear, according to a source close to the investigation, and could be pushed back until February.
    • An investigation by Brazilian federal police and federal prosecutors already has led to charges being filed against 36 suspects, including two former PBR execs.
    | 1 Comment
  • 10:58 AM
    • Surging U.S. operations for LyondellBasell (NYSE:LYB) and Dow Chemical (NYSE:DOW) have made them two of the biggest beneficiaries of the shale boom, but now they could be among the biggest losers of the ongoing oil price crash, Credit Suisse says.
    • Chemical companies have been sharply expanding their U.S. production to take advantage of plentiful supply, but they are suffering along with energy companies as prices for natural gas liquids - which include ethane, propane, butane, isobutane and natural gasoline - have all plummeted this year.
    • Prices for the fuels are closely linked to oil, so the ~45% drop in crude prices has pressured NGLs; also, many U.S. petrochemicals companies were counting on access to cheap supplies of naphtha, an oil product, to gain an advantage over international competitors, but naphtha prices also have fallen.
  • 10:37 AM
    • Even some of Wall Street's big boys are taking a beating in the oil sector: Carl Icahn’s holdings of Talisman Energy (NYSE:TLM) have tumbled $230M since late August, and John Paulson’s firm had one of its largest losses of the year on a bet that big oil companies would buy smaller ones.
    • Before TLM agreed to be bought by Repsol, which boosted TLM shares, Icahn's losses stood at more than $540M as recently as Dec. 11, and he still will have lost ~$290M at the deal price; Icahn also holds stakes in hard-hit Chesapeake Energy (NYSE:CHK) and Transocean (NYSE:RIG).
    • Paulson was the biggest shareholder in Whiting Petroleum (NYSE:WLL) and Oasis Petroleum (NYSE:OAS) at the end of Q3, but his strategy could yet pay off, as many analysts expect consolidation in the energy sector as lower oil prices pressure smaller firms.
    • Also caught flat-footed by the oil price pullback was Prosperity Capital’s Mattias Westman, a longtime investor in Russia whose firm has lost more than $1B this year, in part on stakes in Russian energy companies Gazprom (OTCPK:OGZPY) and Lukoil (OTCPK:LUKOY, OTC:LUKOF).
  • 10:17 AM
    • Alstom (OTCPK:ALSMY) shareholders overwhelmingly approve the company's plan to sell most of its power equipment business to GE.
    • Alstom had said last month it could return up to €4B ($4.92B) in cash to shareholders from the €12.35B deal.
    • Earlier: Alstom CEO discusses impact of fine on GE deal
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