Today - Saturday, April 18, 2015
- An eventual recovery in U.S. oil drilling activity "will fall well short of reaching previous levels," because of a growing reserve of wells that have been drilled but not yet hydraulically fractured and increased activity in re-fracking wells that are running dry, Schlumberger (NYSE:SLB) CEO Paal Kibsgaard said in Friday's earnings conference call.
- At least 2,700 wells have been identified as candidates for re-fracture in North America, representing a total market value of ~$5B, says EvercoreISI's James West, adding that the Eagle Ford likely contains 1,000 of the wells while the Bakken has ~500.
- The assessment suggests the disconnect between oil rigs and the trajectory of U.S. production may get worse before it gets better; while output had been rising in tandem with the number of rigs, production has continued climbing even as the rig count has collapsed to less than half its October 2014 peak.
- ETFs: XLE, VDE, ERX, OIH, XOP, ERY, DIG, DUG, XES, IYE, IEO, IEZ, FENY, PXE, PXJ, RYE, FXN, DDG
Friday, April 17, 2015
- Alpha Natural Resources (NYSE:ANR) reports that the NYSE has said its common stock does not satisfy one of the Exchange's standards for continued listing and trading.
- ANR has six months to regain compliance under the NYSE's rules, and plans to submit a plan outlining the actions it intends to take to do so.
- Cameron International (NYSE:CAM) stands to benefit in the short run from well upgrades to meet new safety regulations as well as over the longer term from an expected oil price rebound, according to a Barron's analysis.
- The drilling industry estimates the new rules could cost $880M over a decade, and CAM is seen as a key beneficiary of the spending, adding to an aftermarket business that already brings in a quarter of the company's revenue and has grown at a compounded rate of 15%/year since 2010; aftermarket profit margins are more than double the company-wide average.
- A rising aftermarket business is for now being eclipsed by a near-term plunge in drilling revenue; in 2009, the last time drilling activity fell so sharply, investors paid 17x depressed earnings for CAM, similar to the current valuation, and the stock price then went on to more than double over five years as drilling activity recovered.
- Trains carrying crude oil will be restricted to a 40 MPH speed limit in populated areas such as New York, one of the steps required by an order from the U.S. Department of Transportation in response to a series of derailments.
- The emergency order makes the agreement mandatory for all railroads hauling 20 or more tank cars linked together or 35 cars in total that are filled with oil or other flammable liquids, and applies to both older model DOT-111 tank cars and CPC-1232s the industry has been voluntarily building since 2011.
- The DoT also issued an advisory to railroads to use the latest technology to check for flaws in train wheels that can cause a crash; a broken train wheel is suspected of causing the March 5 derailment near Galena, Ill., of a BNSF Railway (BRK.A, BRK.B) train hauling 103 cars of Bakken crude.
- Other relevant tickers: CSX, UNP, NSC, KSU, GWR, CNI, CP
- Plug Power (PLUG -1.8%) is initiated with a Buy rating and $3.70 price target at Dougherty, which thinks PLUG has reached an inflection point for growth in the virtually unpenetrated materials handling market in addition to adjacent markets with its expanded product offerings, strategic partnerships and strong customer relationships.
- The firm expects PLUG to become a break-even company by the end 2016 as it expands its margins by lowering its product and service costs, and believes the stock is undervalued at current levels.
- A prolonged period of low oil prices will be difficult for energy stocks, and Schlumberger (SLB +0.2%) is no different, but analysts say the company is showing it is adjusting to the new normal and still finding ways to squeeze efficiencies from its businesses, with the latest job cutbacks providing the most recent example.
- Analysts say SLB's costs fell in line with revenue due to rapid reductions in variable costs, improved execution and the acceleration of the company’s internal efficiency initiatives.
- Despite lower pricing and activity in the industry that has pushed sales down, SLB’s execution and aggressive cost-cutting initiatives "resulted in outstanding margin performance vs. our expectation,” Wells Fargo says; SLB's international margins of 24% were "surprisingly resilient," Morgan Stanley says, marking a Y/Y jump of ~130 bps, which "translates into 25% decrementals, vs. our expectation of 40%, suggesting that SLB's cost reduction efforts are bearing fruit."
- In its earnings conference call, SLB says it expects to maintain the cash quality of its earnings by continuing to convert 75% or more of net income into free cash flow.
- Anadarko Petroleum (APC -1.4%) is considering selling its multi-billion dollar stake in Mozambique's gas reserves, with Exxon Mobil (XOM -1.5%) and Qatar Petroleum showing interest, Reuters reports.
- APC reportedly could sell up to its full 26.5% stake in Mozambique's offshore Area 1 license in the Rovuma Basin; Area 1 holds more than 75T cf of recoverable gas, enough to meet at least four years of total European gas demand.
- The last Area 1 sale - a 10% stake that went for $2.64B in 2013 to India's ONGC - was seen as overpriced, and oil and gas prices have since plunged, making it difficult to value APC's asset.
- XOM could be the front-runner after Shell dropped out following its planned merger with BG Group, which will give it access to large gas assets in neighboring Tanzania.
- The U.S. oil rig count resumes its slide, as producers idled another 26 rigs this week to 734, according to the latest survey from Baker Hughes (NYSE:BHI).
- The oil rig count is now down 55% from its peak of 1,609 in late October 2014.
- Natural gas rigs fell by eight to 217, sending the U.S. combined count of oil and gas rigs down by 34 to stand at 954.
- Texas lost 15 units to 412, down 494 since the Nov. 21 peak, Oklahoma lost six units to 118, and North Dakota shed five to 83.
- ETFs: USO, OIL, UCO, UWTI, SCO, BNO, DBO, DWTI, DTO, USL, DNO, OLO, SZO, TWTI, OLEM
- SM Energy (SM +3.6%) posts strong gains on a broadly down day after saying it expects Q1 production to total 16.8MM boe, or 186.4M boe/day, up 6% Q/Q and beating the company's guidance.
- SM says it plans to re-forecast its FY 2015 production following the completion of its Mid-Continent asset marketing process.
- SM also says its borrowing base under its senior secured revolving credit facility is maintained at $2.4B following its lenders' regularly scheduled semi-annual redetermination.
- Westmoreland Coal (WLB -1.6%) is initiated with a Buy rating and $40 price target at BB&T Capital, which notes WLB's unique and predictable business model that insulates it from the doom and gloom so pervasive in the coal industry.
- The firm cites WLB's 10-year average customer contract length and its cost-protected contracts that largely shield it from spot coal price movements, adding that most of WLB's mines are adjacent to the power plants they serve, reducing transport costs and minimizing fuel switching risk.
- BB&T also likes WLB's strong free cash flow yield, cash flow generation potential through owning the GP of Westmoreland Partners, and a discount valuation.
- Transocean's (RIG -2.3%) rigs are "dropping like flies," Credit Suisse says as it reiterates its Underperform rating and $12 stock price target after RIG's latest fleet status report revealed it had a contract terminated early and had decided to scrap yet another rig.
- RIG's scrapping of the GSF Explorer, which last worked in November 2014 at $412K/day, boosts the number of floaters the company intends to scrap to 19, up from 11 at the end of 2014; early termination of the Sedco Energy raises RIG’s idle floater count to six.
- RIG expects scrapping the GSF Explorer will result in a Q2 non-cash charge of $100M-$120M.
- Offshore drilling contractors are broadly lower, particularly Atwood Oceanics (ATW -4.1%) after Chevron shortened its contract term for one of its drilling units; also DO -2.2%, PACD -2.1%, NE -1.5%, ESV -0.6%, RDC -0.2%, SDRL +0.3%.
- Quebec needs more evidence from TransCanada (TRP +0.1%) that its Energy East pipeline will benefit the province after a marine terminal was scrapped from the plan, says Energy and Natural Resources Minister Pierre Arcand.
- While the company argues the proposed C$12B line crossing Quebec to reach the Atlantic would create jobs and boost the local economy, Arcand is not convinced, saying "Are you going to open an office in Montreal? What are you going to bring to us? And we have yet to get those answers."
- CEO Russ Girling says the project’s benefits to Quebec include jobs tied to C$5B of spending in the province on building the pipeline and at least 10 pumping stations, maintenance on the infrastructure and taxes paid to Quebec municipalities along the route amounting to C$2B over 20 years.
- Husky Energy (OTCQB:HUSKF -0.2%) names oil and gas industry veteran Jonathan McKenzie as its new CFO, ending a search to fill the opening left last July when Alister Cowen left to work at Suncor.
- McKenzie most recently was chief commercial officer of Irving Oil and previously held an executive role at SU.
9:10 AM| Comment!
- Sasol (NYSE:SSL) says it is evacuating 340 South African employees at its Mozambique operations to their home country, citing concerns that they may be attacked in retribution for violence against foreign workers in South Africa.
- SSL says the evacuation is a “precautionary measure” but that work at one of its sites had been temporarily halted, while others continued operating as normal.
- SSL is the first South African company with operations abroad to take measures to protect employees from the backlash resulting from widespread attacks on foreigners in South Africa.
- Total's (NYSE:TOT) plan to pump more than $600M into two struggling refineries continues the company's and Europe’s trend of reducing refining capacity, but the benefits are a long way off and are hardly a done deal, as a strongly unionized workforce is sure to oppose the planned loss of 180 jobs.
- TOT says it will invest $428M to upgrade its Donges refinery in western France and $214M into transforming the La Mède refinery near Marseille into a biofuel plant; at La Mède, TOT will cut staff to 250 from 430 through early retirements and transfers.
- TOT has long struggled with overcapacity in European refining, with European demand for petroleum products dropping 15% since 2008, while the boom in shale oil and gas has given an advantage to U.S. competitors.
- Earlier: Total to spend €600M to revamp refineries, union says
- Petrobras (NYSE:PBR) says its overall output for March fell 1.3% from February to 2.764M boe, blaming the drop in part on maintenance stoppages at its new P-58 platform during the month.
- PBR says production at the sub-salt region rose 0.5% to hit a new monthly record of 672K bbl/day.
- Separately, PBR says it hit pay in two separate wells in Brazil's Amazon and Espirito Santos basins.
- Seadrill (NYSE:SDRL) unit North Atlantic Drilling (NYSE:NADL) says it has delayed closing a cooperation deal with Rosneft (OTC:RNFTF) by two years and agrees to renegotiate the terms of the agreement.
- Western sanctions against Russia and Rosneft had raised concerns about the proposed $4.1B deal and already have forced the Russian oil firm to cancel several NADL contracts.
- Under the deal, which had already been delayed to May this year, NADL would buy ~150 land rigs from Rosneft, which would take a ~30% stake in NADL; SDRL, which holds 71% of NADL, would remain the majority shareholder.
Thursday, April 16, 2015
- Five years after BP's Deepwater Horizon disaster, the recovery in the Gulf of Mexico is progressing better than expected, according to a Bloomberg analysis that generally agrees with the company's recent report that the damage from the spill is “limited in space and time, mostly in the area very close to the wellhead.”
- Since the spill was capped, less than 2% of nearly 18K water samples and a similar proportion of more than 8K sediment samples have exceeded EPA toxicity benchmarks, with many of the bad readings taken in the vicinity of the Macondo wellhead, 40 miles offshore and 5K ft. below the ocean surface.
- It is also worth noting that every year the equivalent of as much as 1.4M barrels of oil seeps naturally from the floor of the Gulf; a federal judge found that the BP spill released 3.19M barrels of crude.
- Largely unnoticed, however, an oil spill off the coast of Louisiana caused by Hurricane Ivan in 2004 continues more than a decade later and likely is much bigger than the operator or the U.S. government have previously admitted.
- Vaalco Energy (NYSE:EGY) says Russell Scheirman will retire as President and COO effective immediately following the company's June 3 annual shareholders meeting, and will not stand for re-election as a director.
- Scheirman joined EGY in 1991 as executive VP and CFO, became President in 1992, and has served as President and COO since 2008.
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