Today - Monday, May 4, 2015
- The market for offshore drilling rigs has deteriorated further since the end of last year and will be “lower for longer," Diamond Offshore (DO -1%) CEO Marc Edwards said in today's earnings conference call that followed Q1 earnings which included a $319M impairment charge on depressed values for three rigs to be retired or scrapped plus five more older rigs.
- The offshore drilling industry "will be challenged in the coming quarters as clients continue to adjust their capital expenditures in response to forecast commodity prices,” the CEO said, adding that a significant oversupply is expected possibly beyond next year as new more sophisticated rigs are built for both shallow and deep water wells.
- E&P customers worldwide have canceled more than $4B of future work for offshore rig owners, Edwards said.
- Whiting Petroleum (WLL +0.4%) is upgraded to Overweight from Equal Weight with a $48 price target at Morgan Stanley following a rebound in growth as well as reduction in leverage due to divestitures.
- The firm expects slower 2016 growth for WLL at 3% after asset sales vs. peers at 18%, but on strip pricing WLL will be free cash flow neutral while its peers are spending 142%of cash flow.
- Stanley says the stock is best suited for investors looking for exposure to oil through a company that can withstand low oil prices for the next 2-3 years; the stock's current negative sentiment has led to a discounted valuation, which offers an attractive entry point.
- MDU Resources (MDU +0.2%) and Calumet Specialty Products Partners (CLMT -3.2%) have started commercial production of diesel fuel and other products at its 20K bbl/day diesel refinery in North Dakota, the first greenfield fuels refinery built in the U.S. in nearly 40 years.
- Designed to process locally sourced Bakken crude, the refinery is now producing diesel and scheduled to begin commercial fuel sales this month to local customers as the plant ramps up to its full diesel production capacity of up to 7K bbl/day; the refinery also will produce up to 6.5K bbl/day of naphtha for use as a diluent to transport heavy oil by pipeline or as a feedstock in gasoline production.
- MDU says the cost of the plant, initially pegged at $300M, now has been revised to $425M-$435M.
- Chinese oil industry officials and government advisers are pushing back against a proposal that could combine China’s already massive energy companies into new national champions, WSJ reports.
- The merger discussions, which are preliminary and ongoing, reportedly have been met with skepticism from economists who say China needs more competition to nurture long-term growth and rebalance the economy.
- One option being studied by China involves combining CNPC (NYSE:PTR) and Sinopec (NYSE:SNP), while others include merging Cnooc (NYSE:CEO) and Sinochem, as China's leadership views bigger and stronger state companies as key to the country’s reasserting its prominence in the world.
- Buckeye Partners (BPL -0.2%) is upgraded to Buy from Hold with an $89 price target at Stifel, which says the company demonstrated during Q1 that it is able to take advantage of favorable market conditions with increased capacity utilization combined with higher re-contracting rates.
- While the firm believes the contango oil trade may not be as strong through the balance of the year, the opportunity still exists for BPL to continue re-contracting storage capacity at favorable rates.
- Stifel also notes that BPL posted distributable cash flow of $155.7M in the latest quarter, beating the Street's expectations of $144M.
- "Kosmos (KOS -3.9%) is off to a good start in 2015," CEO Andrew Inglis said after KOS issues its Q1 earnings report, but investors disagree, sending shares lower as a Q1 loss of $0.18 came in worse than expected amid lower oil costs and higher exploration expenses, and revenues were nearly chopped in half from the year-ago quarter.
- One piece of good news: KOS says in its earnings conference call that it believes its recent Tortue gas find off Mauritania may be “the largest gas discovery offshore West Africa,” with up to 12T cf of gross resources.
- McDermott (MDR +4.5%) powers higher after securing a significantly enlarged workscope under an amendment to its existing contract for fabrication and modification work on the offshore Hout field in the neutral zone between Saudi Arabia and Kuwait.
- The scope includes engineering, procurement, construction and installation for a new platform and two bridges, including significant modifications at the existing complex.
- MDR expects work on the brownfield project to be executed through Q2 2017 and says it is included in its Q1 2015 backlog.
- Pioneer Natural Resources (PXD -2.6%) plunges following negative comments on PXD and other frackers by Greenlight Capital's David Einhorn at the Ira Sohn conference.
- Einhorn calls for shorting PXD, which he dubs "the motherfracker," and says PXD loses $0.20 of present value for every $1 invested, is burning cash and is not growing.
- Of the sector, Einhorn says fracking companies offer an "almost infinite supply of negative return investment opportunities."
- Einhorn says he also is short WLL -2.5%, CXO -1.2%, CLR -1%, EOG -0.7%.
- Seadrill (SDRL +2.9%) joins Transocean (RIG -2%) as a Top Pick among offshore drillers at Zephirin Group, which expects SDRL to generate ~$532M of free cash flow this year.
- The firm supports the long-term potential of the offshore drillers although it sees growth remaining subdued in for the next 12 months until commodity prices stabilize, which should provide support for oil and gas companies to increase capex spending by year-end; it believes offshore drillers are likely to revalue higher regardless of the direction of the overall market due to investors shifting strategies from short to long-term.
- Zephirin also reiterates a Buy rating on Rowan (RDC +0.7%) with a $30 price target, and the firm sees the risk of contract re-negotiations priced into the stock.
- U.S.-traded shares of Petrobras (PBR +1.1%) have rallied 40% in the past four weeks but the trend likely is fueled by short sellers covering their trades, according to Citi head of U.S. credit strategy Stephen Antczak and global head of commodities Ed Morse.
- "The flows into many investment grade energy names have been balanced, but not for all... [Petrobras] has challenges but was a crowded short. Short covering may have contributed to ~10 point rally since mid-March," the analysts write.
- Diamond Offshore (DO -3.5%) reported adjusted Q1 earnings and revenues that beat Wall Street expectations, but shares are sharply lower as investors focus on the significant non-cash impairment charge taken on eight of the company's floaters as well as the depressed outlook across the offshore market.
- DO says it recorded a Q1 impairment charge of $319M to write down the value of eight rigs due to the drilling market slump, with three of the units to be retired and scrapped, a charge that caused DO to report an unadjusted quarterly loss for the first time since June 2004.
- Utilization rates for DO's ultra-deepwater rigs, the company's biggest business, fell to 51% in Q1 from 66% a year earlier.
- WPX Energy (NYSE:WPX) agrees to sell a package of Marcellus Shale marketing contracts and release certain related firm transportation capacity to an undisclosed buyer for more than $200M.
- The sale includes various long-term natural gas purchase and sales agreements, along with 135M Btu/day of firm transportation capacity on Transco's Northeast Supply Link project.
- The deal will release WPX from various natural gas purchase and sales obligations and ~$390 million in future demand payment obligations associated with the transport position.
- Emerge Energy Services (NYSE:EMES) appoints Jody Tusa as its new CFO, replacing Robert Lane, who resigned for personal reasons.
- Tusa brings more than 35 years of finance experience to his new role, and recently served as CFO of USA Compression Partners.
- Earlier: Emerge Energy EPS of $0.39
- EMES -4.5% premarket.
- Sinopec (NYSE:SNP) confirms that Chairman Fu Chengyu is retiring, to be replaced by Wang Yupu, deputy head of the Chinese Academy of Engineering.
- Also, as part of a broad executive shake-up in China's energy industry, former CNPC (NYSE:PTR) exec Wang Yilin is expected to Cnooc (NYSE:CEO) and take over as CNPC chairman, to be replaced by the company’s president, Yang Hua.
- Fu, the most recognized exec in the Chinese energy industry, became SNP chairman in 2011 after more than 30 years with Cnooc.
- Morgan Stanley writes that "investors are likely to turn more cautious on the reform outlook for Sinopec - they don’t know whether the new management team will be as aggressive as Chairman Fu in driving reform."
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